Gig companies are now obsessed with profits, not just revenue growth, an analyst says.

For years, gig economy businesses grew at a breakneck pace, racking up losses in the hope that profits would one day roll in.

But now these companies are focusing on profitability rather than growth, says Michael Morton, senior research analyst for Internet stocks at MoffettNathanson.

“These companies are coming of age. Not where they don’t have growth in their future, but to mature beyond growth at all costs and show shareholder profitability growth now,” Morton recently told Yahoo Finance. (See video above)

Over the past decade, businesses in the gig economy have exploded. For example, Uber (Uber) recently announced $116 billion in gross bookings. That compares to the $19.23 billion the company disclosed the year it went public.

“It was a pace where you were growing as fast as you could and hiring people as fast as humanly possible, and at some point when the rate of growth starts to slow down, you see an increased focus on profitability” , Morton said. “The market has been rewarding companies like this for a very long time, especially private markets, for growing. Don’t worry about profits.

Morton says there are several signs gig economy businesses are pivoting toward profitability. In particular, he pointed to DoorDash (Dash) CEO Tony Xu’s letter to employees in November, which announced layoffs and indicated that the company would reduce its focus on revenue:

“As our business continues to grow rapidly, given how quickly we’ve been hiring, our operating expenses — if not reduced — will continue to outpace our revenues,” Xu wrote.

Morton also quoted several tweets from the CTO, co-founder and CEO of Uber. For example, in a letter to employees last year, Uber CEO Dara Khosrowshahi wrote, “Now it’s about free cash flow. We can and must get there quickly,” according to CNBC’s information.

Yet neither company has achieved profitability to date. For example: Uber reported a loss of approximately $270 based on EBITDA for the quarter ended September 30. DoorDash: a loss of $190 million, according to Bloomberg, for the same period.

Worse still, amid the recent labor shortage, these companies have struggled to find workers. For example, during the pandemic, Uber and Lyft (LYFT) lost more than 60% of their drivers and today remain below pre-pandemic levels, according to Business Insider reports. Meanwhile, post-pandemic, Doordash also reported difficulty finding ‘shooters’ to deliver food

“DoorDash did a little better due to the fact that picking up a bag of food is less intimidating than allowing a stranger into your car,” Morton said.

During an economic downturn, Morton said gig economy businesses could see an increase in workers looking to supplement their incomes.

On the other hand, Morton noted that if the economy slows, it could derail profit-driven gig businesses. Indeed, consumers might find themselves less likely to use services like Uber or DoorDash in difficult times.

“It’s no secret that it’s more expensive to take an Uber across town from the East Village (in New York City) to the West Village compared to a 3L train,” Morton said. “Or what about picking up food instead of having it delivered?” If you’re talking about McDonald’s, our report shows an 80% price increase between picking it up in real life or ordering it from Uber or DoorDash. »

Still, Morton points out that in the past, similar services have shown resilience in the face of economic downturns. For example, taxi spending in 2008-2009 fell only slightly, according to a recent report by MoffettNathanson.

Simply put, gig-age companies could still succeed in their quest for profitability, even in the face of an uncertain economic outlook.

Dylan Croll is a journalist and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.

Click here for the latest stock market trends from the Yahoo Finance platform.

Read the latest financial and business news from Yahoo Finance.

Download the Yahoo Finance app to Apple or android.

Follow Yahoo Finance on Twitter, Facebook, instagram, LinkedInand Youtube.

#Gig #companies #obsessed #profits #revenue #growth #analyst

Leave a Comment

Your email address will not be published. Required fields are marked *