Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Should You Buy Uber Or Lyft After A Judge Shot Down Proposition 22?

By MarketBeat.com (Chris Markoch )Stock MarketsAug 31, 2021 12:19AM ET
www.investing.com/analysis/should-you-buy-uber-or-lyft-after-a-judge-shot-down-proposition-22-200600461
Should You Buy Uber Or Lyft After A Judge Shot Down Proposition 22?
By MarketBeat.com (Chris Markoch )   |  Aug 31, 2021 12:19AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Investors are still deciding what to do with Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) stocks after the companies received a legal setback. On Aug. 20, a California judge struck down Proposition 22, a California ballot initiative that exempted ride-hailing and some other delivery services from the state’s AB-5 law that required drivers to be classified as employees.

This would mean that Uber and Lyft have to provide benefits and other job protections for drivers who were classified as “gig workers.” However, after an initial drop, both stocks are trying to find their footing. And with both stocks trading well below their 52-week high, it’s a good time to ask if either or both are good buys at this time.

Two Sides To The Story

Uber and Lyft gained popularity because of their business model. Namely that their drivers were independent contractors, not employees. The companies view themselves as technology companies that provide a service, in the form of an app, for customers to use to find transportation.

From Uber and Lyft’s point of view, driving for them was never intended to be more than just a part-time gig. It was a side hustle. The problem is that drivers haven’t necessarily followed the script. And here’s where it gets complicated.

As ride-hailing services gained popularity, the drivers that performed this service started to see things differently. Many made the decision to drive much closer to full-time. And without benefits, these drivers are flying without a net. As the COVID-19 pandemic made clear, it’s a long way down when demand for your business dries up.

Drivers faced the double whammy of a revenue stream that no longer existed. So they lacked the ability to pay for such things as health insurance and didn’t qualify for unemployment insurance.

This led Uber’s CEO, Dara Khosrowshahi, to petition the Trump administration to allow independent contractors the same pandemic protections that employees received. This was bad optics at best because the perception simply was that the companies were asking the government to provide what they wouldn’t provide themselves.

The Legal Battle Will Continue

The first thing investors need to understand is that the legal battle is likely far from over. As Barron’s reported, the ruling is expected to be stayed pending appeal. That means that, for now, it’s business as usual for both companies. And at least one analyst, Needham’s Bernie McTiernan, states there is a “lack of precedent for ruling against ballot initiatives.” If an appeals court agrees this could all be much ado about nothing.

Either way, this case is likely to make it all the way to the California Supreme Court—and since the wheels of justice tend to move slowly, it will likely be 2023 before there is a final ruling.

Evaluate The Stocks For What They Are Today

The global ride-sharing market is expected to be worth $185.1 billion by 2026 and grow at a Compound Annual Growth Rate (CAGR) of 16.6% from 2021 to 2026. Both Uber and Lyft recently reported strong top lines. Lyft remains unprofitable although it has guided that it will turn a profit in late 2022. For its part, Uber posted its first quarter of positive earnings in the last quarter. It remains to be seen if that is a long-term trend.

Uber has moved aggressively into the food delivery space. This encourages drivers to spend more time on the platform. While this has been a lift to the company’s revenue, it’s a space that is getting very crowded. Lyft has a relationship with GrubHub (NYSE:GRUB), but it’s not nearly as tied into the sector.

It’s difficult to advocate taking a long position on either company until this issue is resolved one way or another. If the companies are forced to classify drivers as employees, it will cost millions of dollars. But with time on their side, I don’t necessarily believe bankruptcy is likely for either company.

Ultimately these costs will be passed along to the consumer who will either accept them or they won’t. My guess will be that they will, and that Uber and Lyft will probably employ fewer drivers who will now become more like shift workers. The whole thing kind of feels like a “be careful what you wish for” proposition for consumers and the drivers.

Analysts are bullish about both stocks. According to MarketBeat data on Lyft, five analysts have boosted their price target in the last 30 days. The consensus 12-month price target for LYFT stock is for a gain of over 47%. Analysts have an even more bullish price target for UBER. They see the stock climbing over 65% in the next 12 months. However, the company has had its price target lowered by three analysts since it reported earnings on Aug. 4. And all of those came in at least two weeks prior to the judge’s ruling.

So if you’re looking at buying either UBER or LYFT, you should be using a 12-month time horizon at the most. And in that scenario, LYFT may be the better buy. In a shorter term, UBER looks like it has a more promising setup and valuation, and with COVID concerns still lingering, it will benefit from its food delivery service.

But over time, I think that the food delivery business is easy to copy. And Lyft, because it’s not as focused on meal delivery, may have a more straightforward path.

Original Post

Should You Buy Uber Or Lyft After A Judge Shot Down Proposition 22?
 

Related Articles

Thomas Hughes
Beware The Rebound In Retail Stocks By Thomas Hughes - May 27, 2022

The S&P Retail ETF (NYSE:XRT) is rebounding, but we don’t think investors should cheer too loudly. The move is driven by the combination of oversold markets and mixed...

Jea Yu
Affirm Stock Has Affirmed A Bottom By Jea Yu  - May 27, 2022 1

Buy now and pay later purchase financing provider Affirm Holdings (NASDAQ:AFRM) stock is rebounding after bottoming out at $13.64. The buy-now-pay-later (BNPL) platform had a very...

Should You Buy Uber Or Lyft After A Judge Shot Down Proposition 22?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Raanana Freshratih
Raanana Freshratih Aug 31, 2021 7:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I love it when I tried
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email