Is Uber stuck in a jam?

Ride-sharing firms, Uber and Lyft have taken huge hits this week, with share prices reaching all-time lows, as a new California law looks likely to come into play.

Uber shares were down to $30.70, a 5.7 per cent fall, and a 34 per cent slump from their closing peak in June. Lyft share prices hit a low of $45.42, down 42 per cent from their closing peak on the firm’s first day as a publicly traded company back in March.

The primary problem for the firms is the proposed bill, Assembly Bill 5, which will force them to change the way they treat drivers. If the law passes through State Senate, the firms will be forced to classify their drivers as employees, instead of contractors, which could upturn their current business models. The bill, which passed the Senate Appropriations Committee last week, aims to make it more difficult for ‘gig economy’ firms to classify workers as contractors, after a backlash from contractors about poor pay and working conditions. Both ride-sharing companies have pledged to challenge the law if it is passed, teaming up with US food delivery service DoorDash to put together a ballot measure that would save them from reclassification.

However, while this is the latest event to force Uber and Lyft’s share prices to plummet, neither firm has set the stock market alight since their respective IPOs earlier in the year. Uber reported a net loss of $5.24 billion dollars for the second quarter of 2019, earning the dubious accolade of being among the largest loss recorded since the US financial crisis. This was not a complete shock for analysts, the huge cost of launching its IPO in May was expected to result in a loss for Uber. Share prices still fell sharply though, with investors seemingly unconvinced that this is Uber’s only problem. An ongoing price war with Lyft – which has now reached a truce – and the upsurge of global competitors such as Ola in London and Didi Chuxing in Latin America have hit Uber’s revenues hard. As a result, its rise in revenue compared to the same period last month was just 14 per cent, and the growth rate for its ride sharing business was just 2 per cent, which is likely to have disconcerted investors. Most analysts think Uber is dramatically under-performing, and its post IPO lock-in period, which expires on November 6, is a cause for concern because if the firm doesn’t show potential for improvement, early investors may see it as an opportunity to exit.

There seems to be slightly more optimism surrounding North American centred Lyft, despite the potential repercussions of Assembly Bill 5. Lyft’s second-quarter results, posted in August, showed revenue up 72% for the second quarter of the year. Lyft also announced price hikes for some areas, leading analysts to back its chances of profitability, and its decision to end its own lock-in period a month early did not end in the major share price fall that was expected. While Lyft shares still look set for some volatility, some analysts have upgraded its rating from ‘neutral’ to ‘buy’, and the general consensus seems to be that it is driving in the right direction.