What’s the outlook for Uber and Lyft share prices for the rest of the year?

Uber [UBER] and Lyft’s [LYFT] share prices had a bumper 2020, up 62.58% and 16.55% respectively. Lyft’s share price has had a better run in 2021, gaining 25.75% since the start of the year, outpacing Uber’s 1.43% gain (as of 25 June’s close).

November saw fuel added to ride-hailing apps stocks when Californian voters decided to pass proposition 22. This led to a sharp acceleration in both Uber and Lyft share prices in the last two months of the year.

By passing the proposition, Uber and Lyft were exempt from a Californian law that would have meant treating gig workers as employees. However, the issue hasn't been parked. Similar fights have played out in Europe and are on the cards in other US states. And  With both companies eyeing up the possibility of becoming profitable this year, the stakes are high.

  

Why are Uber and Lyft share prices vulnerable to legislation?

Both Uber’s share price and Lyft’s are vulnerable to any changes on how drivers are classified. In April both Uber and Lyft’s share prices tanked after President Biden’s Labor Secretary Marty Walsh told Reuters that a lot of gig workers should be reclassified as employees. While that was just a statement in an interview, it provides some insight into the current administration’s mindset.

Now the fight has come to Massachusetts where a similar ballot to California’s could take place. According to Seeking Alpha, the companies have until 4 August to put something on the ballot to exempt them from labour laws governing worker classification.

Massachusetts has some of the toughest labour laws in the US, with the companies reportedly planning to spend $100m persuading voters to let them off the hook.

“We believe Massachusetts will be the next ground zero in the worker battle. They’re going to try to do here what they did in California, which is to buy themselves a law” - Shannon Liss-Riordan

 

“We believe Massachusetts will be the next ground zero in the worker battle. They’re going to try to do here what they did in California, which is to buy themselves a law,” labor attorney Shannon Liss-Riordan told reporters.

And it's not just Massachusetts that is getting tough on Uber and Lyft. In Chicago this month an ordinance has been introduced that would effectively create a minimum wage for Uber and Lyft drivers. Again that will need to go to voters, but if passed it could drive up fare prices and reduce just how much of a cut Uber takes from its drivers.

 

Fundamentals behind Uber and Lyft share prices

Changes in driver classification are just one front Uber CEO Dara Khosrowshahi has to contend with this year. The others are juggling Uber’s recovering ride-hailing business and its booming food delivery offering.

Unsurprisingly, the pandemic was tough for Uber and Lyft with people stuck at home. Uber was able to lean on its food business, however, Lyft, which specialised in airport transfers, wasn’t so lucky. That makes an economic bounce back, along with people confident enough to actually use a ride-hailing device, key for the two businesses' success.

  

Already there have been signs that things are returning to a semblance of normality. In Uber’s first-quarter results, net losses came in at $108m, a remarkable turnaround from the $968m net loss seen in the fourth quarter of 2020. A big chunk of that was due to the $1.6bn sale of its self-driving business to Aurora, making it hard to read just how much Uber has really bounced back.

However, Uber reaffirmed its expectations to reach profitability on an EBITDA basis by the end of 2021. For that to happen, it will need to avoid any change in how it categorizes its drivers. Uber’s food delivery hauled in $1.7bn, beating the ride-hailing business’s $853m in revenue.

Lyft’s first-quarter earnings also showed signs of recovery from the pandemic. In the quarter, Lyft posted a net loss of $427.3m, which was better than the $458.2m net loss seen in the fourth quarter. Like Uber, Lyft expects to become profitable on an adjusted EBITDA basis this year, signalling that it expected this to happen in the third quarter.

  

In the results, Lyft said it expects second-quarter revenues to come in between $680m and $700, which would be a 12% to 15% increase quarter-on-quarter and a 100% to 106% increase year on year. Like Uber, Lyft sold off its self-driving business, this time to a Toyota subsidiary for a cool $550m.

“We continue to believe there is still significant pent-up demand for mobility that will take time to play out,” CEO Logan Green said on an earnings call with investors

As it stands, Uber’s share price has a $68.64 average price target from the analysts tracking the stock on Yahoo Finance - a 25% upside on Friday’s close. Morgan Stanley is bullish on Uber, with an overweight rating and a $72 price target. Lyft has a $69.08 price target, an 11% upside.