Lyft and Uber's Advertising Businesses Post Big Gains

Uber has an advantage over Amazon when it comes to ad growth, according to one analyst

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There has been a significant increase in traffic generated by the nascent advertising businesses of both Uber Technologies Inc. and Lyft Inc. in recent months, according to each company.

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There are many ways in which marketers can reach consumers using the data they already possess on their customers, and these companies are part of a growing set of options that are available to them. Walmart Inc., for instance, enables advertisers to use its data to send targeted digital ads to shoppers across the web, as an example. Advertisers are also getting a greater number of ways to reach consumers by using retailer data, such as DoorDash Inc., Kroger Co., and CVS Health Corp.

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Uber announced last year that it would allow brands to target ads to users of its ride-sharing app before, during, and after their rides, based on aggregated data about the destinations and histories of their trips. After launching its restaurant-and-grocery delivery app Uber Eats in 2019, the company has since launched new products such as post-checkout ads, which aired during this year's Super Bowl, to advertise its restaurant-and-grocery delivery app.

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It is also crucial that the company continues to grow its advertising business in order to compete with its ride-hailing rivals. The company said that increased ad revenue was a key contributor to its overall business growth in the latest quarter.

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“Uber has passed $500 million in annual ad sales, and that's based on doubling our number of active advertisers year over year,” Uber Chief Executive Dara Khosrowshahi said during a conference call. 

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Approximately 315,000 businesses used Uber's platform to advertise their businesses during the fourth quarter, which is almost double the number of advertisers the company had a year earlier, according to Uber.

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Mr. Khosrowshahi, Uber's CEO, said that the company thinks there is more growth potential in Uber Eats due to the fact that only 25% of the companies selling products through Uber Eats are purchasing ads on the platform. It is still planned for Uber to generate one billion dollars in ad revenue by 2024, according to the CEO. 

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Analyst Nikhil Devnani of Bernstein Research believes Uber's growth in advertising could be key to reaching its earnings before interest, taxes, depreciation, and amortization targets for 2024. 

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Since Lyft has no comparable offering to Uber Eats, it gives Uber a big advantage in the market for marketing budgets.

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 “I’m very pleased with the progress Uber has made on its advertising business in the last few months,” he said.

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While Lyft has not discussed its advertising business in its most recent earnings report or in a call with analysts, Chief Business Officer Zach Greenberger told Fortune in an emailed statement that the company's ad revenue growth has exceeded the company's targets.

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It has been said that Lyft's ad revenue increased "nearly seven times" in the fourth quarter as compared to the previous quarter, according to Mr. Greenberger.

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As of yet, analysts don't have a clear sense of the size or growth rate of Lyft's media division, Mr. Devnani said.

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It is also important to note that the advertising prices for each company offer an insight into their respective market positions.

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One executive said an advertising exchange provided details of both companies' offerings earlier this month, and that Lyft charges $2 for 1,000 consumer impressions for its rooftop display ads while Uber charges $5 for a comparable product.

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It was confirmed by a Lyft spokesperson that the price was the same. Uber did not respond to a request for comment.

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A 3% click-through rate has been recorded for Uber's in-app ads, according to Khosrowshahi, who charges $45 per 1,000 impressions. Advertising agency executives say both numbers are significantly higher than industry averages for similar products. 

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There is a lot of similarity between Uber's strategy of selling ads to complement and take advantage of its core business as well as similar to Amazon's. According to Mr. Devnani of Bernstein Research, Google Inc.'s ad sales business has been growing quietly for years and is now large enough to compete with Meta Platforms Inc. and Alphabet Inc.'s Google, which is owned by Alphabet Inc. 

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“Ride-share advertising is still in its infancy in terms of its prevalence,” he said.