The ride-hailing industry got some seriously needed good news on election night. In a surprise vote, California’s Proposition 22 which allows ride-hailing services such as Lyft (NASDAQ:LYFT) to qualify its drivers as independent contractors was passed. Not surprisingly, Lyft stock gapped up after the vote.
However, Lyft got some even better news on Nov. 9. In pre-market news, Pfizer (NYSE:PFE) and Biontech (NASDAQ:BNTX) announced that its vaccine candidate had achieved 90% efficacy in Phase 3 trials. The companies are in the process of submitting an Emergency Use Authorization (EUA) and may (big word) be able to start distributing its vaccine in December.
And not surprisingly, Lyft stock was gapping up again.
Earnings Will Provide a Short Term Focus
Neither of these events will change the company’s earnings, which they will report after the market closes on Nov. 10. Lyft is expected to report a negative earnings per share of 92 cents on revenue of $502.03. The whisper number puts Lyft’s EPS at a negative 84 cents per share.
If the forecasted results were to play out, the company would post a sequential beat on the top line, but Lyft would be lower on the bottom line unless the whisper number is right.
Either way, investors will be keen to hear the company’s forward guidance based on the election result as well as the potential for a vaccine. Let’s take a look a look at each separately.
The Gig Economy Is Alive And Well
Words are inadequate to describe how big of a deal it is that Lyft, Uber (NYSE:UBER) and other private ride-hailing companies won this vote. If the companies were forced to designate their drivers as employees, the business model for the ride-hailing industry as a whole would have had to be seriously rethought.
As I’ve written before, ride-hailing companies like Lyft are basically software providers. They envisioned a model where drivers would be very part-time employees simply looking to pick up a few extra bucks. But as ride-hailing became more popular, drivers saw an opportunity to turn a “gig” into a full-time job complete with benefits.
That would be devastating to a business that needs to squeeze every bit of margin it can get particularly when customers have little reason to use a service for reasons other than price.
However, investors should not start popping the champagne corks. In fact, this is probably only the beginning of the litigation that will ensue. Proposition 22 was put on the ballot to overturn California’s Assemble Bill 5 (AB5). President-elect Joseph Biden is on the record as supporting AB5, so you could say the ball is in his court right now.
I suspect this won’t be the last we hear about this issue. This means it’s likely that Lyft and other companies may be dealing with long-term regulations and other legal maneuvers.
A Vaccine Is a Psychological Lift
The travel and tourism industries have been devastated this year as the world essentially stays home. Ride-hailing was down in most areas of the company as consumers were either a little jittery about riding in someone else’s car. And, even if they were so inclined, there weren’t a lot of places to go.
So it’s not surprising that investors were renewing their optimism for airline, cruise line and ride-hailing stocks in the wake of Pfizer’s announcement.
Now, let’s provide a little reality check. First, an effective, and safe, vaccine is huge news. And at this point half a loaf, or even a tenth of a loaf (in terms of available doses) is nothing short of incredible. It should rightfully be celebrated by anybody who isn’t playing politics with science.
However, it will be a while before everyone in the world can get vaccinated. And Pfizer’s vaccine candidate must be kept at a sub-zero temperature that will make the logistics of global distribution a bit challenging.
Is Lyft Really A Buy?
I don’t love ride-hailing stocks based on the business model. I wonder how profitable a ride-hailing company can really be in the long term. Nevertheless, I believe the long-term narrative just got a lot better. After all, a vaccine no longer seems like a hypothetical. And it may not be the only vaccine to come to market. But a vaccine right now will not change the travel habits of most Americans in the short term.
You may not want to go all in on Lyft, but if you believe that this news may save us from future lockdowns, than it’s probably a good idea to take a position.