For years, gig economy companies have grown at breakneck speed, making up for losses in the hope that the profits will one day roll in.
But now those companies are emphasizing profitability over growth, said Michael Morton, senior research analyst at Internet stocks at Moffett Nathanson.
“These companies are maturing. They’re growing not into the future, but beyond growth, at all costs, and now they’re showing growth in profitability for shareholders,” Morton told Yahoo Finance. (Watch the video above)
Over the past decade, gig economy companies have grown. For example, Uber recently announced $116 billion in gross bookings. That’s compared to $19.23 billion the company reported the year it went public.
“It was a pace where you grow as fast as you can and hire people as fast as you can, and at some point when the growth rate starts to slow down, you see more focus on profitability,” Morton said. “The market has long rewarded companies like this, especially the private markets, to grow. Don’t worry about profits.
Morton says there are several signs that gig economy companies are on the way to profitability. In particular, Dr. Dash (Dash) CEO Tony Xu pointed to a letter he sent to employees in November, which announced layoffs and indicated that the company would reduce its revenue focus.
“As our business continues to grow rapidly, depending on how fast we hire, operating expenses – if left unabated – will continue to exceed our revenue,” Xu wrote.
Morton cited several tweets from the CTO, co-founder and CEO of Uber. For example, in a letter to employees last year, Uber CEO Dara Khosrowshahi said, “Now it’s about free cash flow. We can and must get there faster,” according to CNBC.
So far, neither company has shown profitability. For example, Uber ended September 30 and reported an EBITDA loss of around $270. DoorDash: $190 million in losses, Bloomberg reported, during the same period.
Worse, in the recent labor shortage, such firms have struggled to find workers. For example, Uber and Lyft ( LYFT ) lost more than 60 percent of their drivers during the pandemic and today are below pre-pandemic levels, Business Insider reported. Meanwhile, in the wake of the outbreak, Doordash has also reported having trouble finding “dashers” to deliver food.
“Berdash does a little better because it’s less intimidating to pick up a bag of food than it is to let a stranger in your car,” Morton said.
During an economic downturn, Morton said the gig economy may see an increase in workers looking for companies to supplement their income.
On the other hand, Morton said, if the economy slows down, it could hamper the way gig companies push to profit. That’s because consumers may be less likely to use services like Uber or DoorDash during tough times.
“It’s no secret that it’s very expensive to take the 3L train from the East Village[in New York City]to the West Village across the city of Euburn,” Morton said. “Or what about food pickup and delivery? If you’re talking about McDonald’s, our report shows an 80% price increase between real-life pickup or ordering from Uber or DoorDash.
Still, Morton has proven in the past that similar services are resilient to economic downturns. For example, in According to the latest report by Moffett Nathanson, the cost of taxis decreased slightly in 2008-2009.
Simply put, companies in the gig age can succeed in their quest to be profitable even in an uncertain economic outlook.
Dylan Kroll is a reporter and researcher at Yahoo Finance. Follow him on Twitter @CrollonPatrol.
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