Industry Spotlight

How will Uber and Lyft's share prices fare against the state of California?

Both Uber [UBER] and Lyft’s [LYFT] share prices could be facing a major bump in the road as California looks to change legislation concerning the gig economy.

So far this year, Uber’s share price has struggled to reach the $45 value at which it debuted when it went public in May 2019. Although it came close on 12 February with an intraday high of $41.86, closing slightly lower at $41.25, Uber’s share price fell 64% to an all-time low of $14.82 on 18 March as a result of COVID-19.

While Uber’s share price has recovered since its March slump — climbing 131.4% to 1 September’s close — it’s still a far cry from its all-time highs.

 

 

 

At $34.30, Uber’s share price is up 15.3% year-to-date. Its best day since the mid-March slump was 5 June when the stock reached an intraday high of $38.78, before closing at $37.21.

Lyft’s share price has fared even worse than its counterpart. It reached an all-time low of $14.56 on 18 March before closing at $16.05, which was in line with Uber’s slump and that of the wider market.

By mid-summer, Lyft’s share price was showing signs of recovery from the low of $16 it hit in March, reaching an intraday high of $41.19 before closing at $40.98 on 8 June. However, it has gradually declined since, slipping 28.2% to close at $29.43 on 1 September.

As of 1 September’s close, Lyft’s share price was down 32.47% year-to-date.

Adding to the woes of Lyft and Uber is an ongoing legal battle over the companies’ employees.

 

 

 

How new legislation could affect operations

Although intended to provide protection for gig workers by granting employment rights, the California Assembly Bill 5 (AB5)  — which came into effect last year — has stirred controversy with independent contractors in California, who Forbes report are losing income as a result of the law.

After California filed a lawsuit against both companies, judge Ethan Schulman granted an injunction compelling both companies to reclassify their drivers as employees with immediate effect on 10 August. Uber and Lyft hit back by arguing that they’re tech companies connecting riders and drivers — rather than transportation firms. 

The argument regarding how ride-hailing apps should treat their drivers is nothing new but, according to both companies, their drivers prefer the flexibility that comes with freelancing.

As well as saying that they wouldn’t be able to simply hire all of their drivers, Dara Khosrowshahi, CEO of Uber, recently wrote in a New York Times opinion piece that, if they did: “Rides would be more expensive, which would significantly reduce the number of rides people could take and, in turn, the number of drivers needed to provide those trips. Uber would not be as widely available to riders, and drivers would lose the flexibility they have today if they became employees.”

“Rides would be more expensive, which would significantly reduce the number of rides people could take and, in turn, the number of drivers needed to provide those trips. Uber would not be as widely available to riders, and drivers would lose the flexibility they have today if they became employees” - Dara Khosrowshahi, Uber CEO

 

Uber and Lyft both came close to suspending their service as a result of the row, but this has been reprieved and both are allowed to temporarily continue as normal while the case is under appeal.

Now, both Uber and Lyft are considering new ways to conduct their operations — one suggestion could see Uber using independent fleet operators — while simultaneously pushing for a state ballot this November.

If the ballot goes ahead, John Blackledge, MD at Cowen, believes the move “essentially lets the voters decide” how Uber and Lyft will operate.

 

How is the legal battle weighing on sharing prices?

Although both Uber and Lyft have been given Hold ratings by Zacks Investment Research, analysts polled by CNN Money have a consensus Buy rating for both companies.

For Uber, this rating is held by a majority of 31 out of 41 analysts, whereas 24 out of 41 analysts rate Lyft a Buy. There is a bit more disparity on the Lyft rating, as another 14 analysts suggest the company’s stock is currently a Hold.

According to CNN Money, the consensus price targets are also close for both companies, with 37 analysts giving Uber a median target of $41 and 34 analysts giving Lyft a median target of $40. These targets would represent respective increases of 16.6% and 35.9% as of 1 September’s close.

 

 UberLyft
Market Cap$60.115bn$9.185bn
EPS (TTM)-4.05-5.47
Operating Margin (TTM)-34.79%-54.73%
Quarterly Revenue Growth (YoY)-29.2%-60.9%

Uber & Lyft share price vitals, Yahoo Finance, 2 September 2020

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