The good news is, both Uber Technologies (UBER -2.18%) and Lyft (LYFT -1.92%) managed to grow their revenue last quarter. The bad news is, both ride-hailing companies remain deep in the red. Their GAAP losses are still mostly growing, in fact, rather than shrinking as each company gets bigger.

Were we still in the throes of the pandemic or if these organizations were still start-ups, investors might be able to look past the ongoing losses. With Uber now being 11 years old and Lyft being around for the past 10 years, it's not unfair to ask if actual profits are even possible in this industry. The losses remain very, very large, after all.

Another quarter, another loss

For the quarter ending in September, Lyft turned a little more than $1 billion in revenue into an operating loss of $290 million. The top line was up 21%, yet the loss grew by 41% year over year. And on a GAAP basis, Lyft lost $422 million, reflecting a $136 million impairment charge. This loss also factors in stock-based compensation of $224 million, although this form (and degree) of employee pay is not unusual for the company.

Uber fared slightly better, but only slightly. The much bigger ride-hailing company produced $8.3 billion worth of sales during the third quarter of the year, losing $495 million on an operating basis and $1.2 billion after counting all of last quarter's booked costs. Its operating loss narrowed slightly year over year, falling 13%. It's still a sizable loss, however, particularly given the top line's 72% year-over-year improvement over pandemic-crimped results.

More than that, though, last quarter's results are simply more of the same. The chart below puts these revenue and profit trends in perspective.

Rising revenue isn't translating into profit growth for Uber Technologies or Lyft.

Data source: Thomson Reuters. Chart by author. All figures are in millions of dollars.

In Lyft's defense, that $224 million of Q3 spending on stock-based compensation isn't exactly a cost directly linked to keeping the business running. Uber booked $482 million worth of stock-based pay during the third quarter, like Lyft, maintaining this growing form of compensation costs that may or may not be necessary to keep the operation going. This particular expense may be curbed at some point. 

Even stripping out the entire cost of these stock awards, however, leaves both ride-hailing companies at least a little in the red for last quarter. 

Moreover, both companies' biggest expense also saw huge growth last quarter. That's the sheer cost of providing ride-hailing services, most of which reflect driver compensation. Uber's cost of sales increased to the tune of 121%, while Lyft's cost of sales grew by 45%. To put those numbers in perspective, driver costs consumed 54% of Lyft's total third-quarter revenue, versus only 45% for the same quarter a year earlier. These costs ate up 62% of Uber's Q3 sales, up from the year-ago comparison of 50%.

This rapid growth of both companies' single-biggest cost reflects a major paradigm shift here and abroad: higher wages. Concerted efforts by workers across the country's coffee shops, shipping warehouses, and retail stores (just to name a few) reached their highest level in years during the first half of 2022, according to the National Labor Relations Board. California's AB5 "gig-worker" law recategorizing many contract-based workers as employees is another example of this shift. These measures not only broadly raise wages for affected workers, but indicate an environment where wages are generally above average.

Even removing their cost of sales from the discussion, each company's operational and administrative spending grew year over year. Marketing spending was up for Lyft, and not meaningfully lower for Uber. Uber's R&D expenses, meanwhile, were up 54% year over year during Q3, with its general and administrative costs growing 45% in the same time frame.

Connect the dots. The math of maintaining a viable ride-hailing business just might not make sense. That's not something anybody would have anticipated a decade ago when these companies were first getting going, but it's a prospect no investor can continue to ignore. 

Time for tougher questions ... and better answers

None of this is to suggest there is no path to profitability for either company. In the midst of a cost-cutting initiative, Lyft is expected to cull $350 million worth of annual spending. Uber's also been looking to meaningfully lower its spending since early this year.

After being in the business for more than 10 years, however, one would have expected both Uber and Lyft to stumble across the winning formula by now. More to the point, one would expect any costs that could have been cut to have already been cut by now. Current cost-cutting plans may well end up undermining both companies' ability to sell and deliver their services rather than improving profitability. In the meantime, costs continue to grow dramatically despite the cost-cutting efforts now underway.

Investors may want to steer clear of both stocks until clearer answers to tougher questions start getting answered.