(Bloomberg) -- Shares of Uber Technologies Inc. and Lyft Inc. tumbled on Wednesday as investors worried the coronavirus outbreak might be entering a phase where fewer people choose to step out of their homes, hurting the demand for ride-hailing services.
Uber shares fell 9.4%, while Lyft plunged 12% in its biggest ever drop.
“We could be entering a much more troublesome phase for Uber and Lyft where people choose not to go out at all,” Atlantic Equities analyst James Cordwell said in an interview, adding that up until now we were in the sweet spot for ride hailing where people were still going out, though somewhat reticent to take public transit.
The virus-related turmoil has continued to deepen over the past few weeks, sending stock markets around the globe plummeting. The crisis deteriorated further after the World Health Organization said Wednesday the virus spread was now a pandemic, while the U.S. government remained unable to detail any stimulus measures to combat the economic fallout.
Meanwhile, travel restrictions around the world have risen. Airlines have canceled flights to heavily-impacted countries; companies have encouraged remote work and fewer business trips; and universities have moved to virtual classes. According to Uber, airport trips make up about 15% of its gross ride bookings.
“As travel slows and consumers work from home/go out less, we see potential for both companies to see slowing ride trends in March through April, and that creates ride-sharing revenue risk,” Raymond James analyst Justin Patterson wrote in a note on Tuesday. The analyst said Raymond James’ survey work shows airports, nightlife, and commutes are the most common route types.
The broader market meltdown is also bringing the two companies’ cash situation under sharper focus, as investors turn more risk averse.
“I wonder if the market is beginning to worry about the cash burn implications if ride hailing activity drops significantly for an extended period,” Atlantic’s Cordwell said. Both companies have a limited period to become free cash flow positive before they run out of cash, and a few weeks of “little or no ride-hailing activity would materially shorten that time-frame.”
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