Uber shares slumped to their lowest level since the start of the pandemic as the ride-hailing app faced the prospect of a brutal price war with its US rival.
The company’s shares fell more than 10pc after Lyft, which competes with Uber in North America, said it planned to spend heavily on signing up more drivers amid a shortage of available rides.
Uber’s slide came despite its financial results beating Wall Street forecasts as its key passenger business recovered to pre-pandemic levels.
After demand for rides slumped during Covid restrictions, chief executive Dara Khosrowshahi said the rides business in April had surpassed levels in the same month in 2019.
This helped Uber more than double revenues in the first quarter of the year. It also expected to generate “meaningful positive cash flows” for the first time in 2022 – a major milestone after more than a decade of burning through investors’ cash.
However, the positive figures were marred by dismal results from US rival Lyft on Tuesday.
Uber’s biggest rival in North America gave a disappointing financial forecast for the three months to June. It said rising fuel prices and a lack of drivers meant it would have to spend heavily on incentives such as bonuses to keep drivers on the road.
Uber and Lyft compete fiercely for drivers and the prospect of heavy spending from Lyft spooked Uber investors, despite the company saying it did not expect to have to spend more on incentives. The prospect of an expensive driver war threatens to further delay the companies’ routes to profits.
Lyft shares plunged by a third to a record low after the results issued after the bell on Tuesday.
Angelo Zino at CFRA Research said: “Lyft came out and said they would have to aggressively spend on improving driver supply. There might be a belief that Uber may ultimately have to do the same, or if Lyft is successful that there is a negative impact.”
Dan Ives of Wedbush Securities added: “The battle for drivers continues, which is a race to the bottom in the Street’s view. We believe Dara [Khosrowshahi] and co. are doing the right things but the Street is worried about further cracks in the business model ahead.”
Uber is also facing challenges in the UK, where it has been forced to raise prices, charge VAT on rides, and spend on driver rewards such as holiday pay and pensions after losing a legal battle last year.
Uber shares have now fallen 40pc this year, with the drop coming amid a widespread technology sell-off partly caused by rising interest rates.
The company said first-quarter sales rose by 136pc year-on-year to $6.9bn (£5.5bn). Revenue from its rides business overtook its Eats food delivery division for the first time since the start of the pandemic.
However, Uber made a $5.9bn loss due to a $5.6bn writedown on key investments such as its Asian counterpart Grab, self-driving car company Aurora and the embattled Chinese ride-hailing app Didi.
Unlike Uber, Lyft does not have a food delivery business, meaning it has struggled more than its bigger rival during the pandemic, when soaring takeaway orders boosted sales.
Recent petroleum price increases caused by the war in Ukraine have led Uber and Lyft to add a surcharge for passengers in the US, although Uber has not done the same in the UK.
However, prices have risen due to surging demand for rides not being met by enough drivers on the road. Uber raised prices again in March after it was forced to start charging passengers for VAT. UK competitors such as Bolt and Ola are expected to have to do the same.
Transport for London recently renewed Uber’s license for two and a half years in a major victory for the company after years of conflict with the regulator.