Lyft (NASDAQ:LYFT) has been trying to differentiate itself from its larger rival Uber (NASDAQ:UBER) since before the two companies went public. Ever since the stock’s first trade, in March, at $72 per share, those new investors have been underwater with the LYFT stock price falling more than $15 since its IPO.
Stifel analyst Scott Devitt sees promise in Lyft Inc stock, while the Trump Administration seems to prefer Uber. Both are based on the same “gig economy” business model, one which now is under threat in the state that created it.
AB 5
Assembly Bill 5 in California would place what’s called the Dynamex test on efforts to define drivers as independent contractors.
It’s a test Lyft can’t meet.
Lyft and Uber are trying to kill the bill, or at least amend it. Uber’s CEO joined Lyft’s co-founders in claiming they were ready to “do our part” to help drivers. They proposed giving drivers benefits without making them employees.
But they insist on the contractor model. They’re joined by the state’s Chamber of Commerce and dozens of industry groups, all pushing for exemptions like those already given to doctors, lawyers and hair stylists in the bill. Uber also trotted out a paper from the National Bureau of Economic Research, written by Uber drivers, claiming “flexibility” lets them earn more than working regular jobs.
The bill spotlights problems in the “gig economy,” where workers lose the protection of employees, technology replaces management and founders reap high valuations. Gigs were great when the economy was flat on its back, early in the decade. A strong economy changes the equation.
The Future for LYFT Stock
The irony is that, for Lyft, drivers were always seen as an interim solution. Both Lyft and Uber have plans for autonomous taxis that lack drivers. Both work with scooter and electric bike start-ups whose contractors just pick the units up at night and recharge them.
But while Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Waymo has launched its self-driving cars in Arizona and there’s a pilot program in California, most analysts have been pushing back their timelines for full autonomy. The industry calls driver-less cars “Level 5.”
Each advance in car safety makes driver behavior worse. This has been true since the introduction of seat belts in the 1950’s. People drive more, they drive faster, they drive drunk or stoned or they drive with one eye on their smartphone. U.S. car deaths today are at about the level they were at in 1955. With partly autonomous cars, drivers just fall asleep.
Lyft and Uber, which once claimed to be the answer to urban traffic congestion, are making the problem worse. Mass transit systems take cars off the road. Taxis add cars to the road.
The Bottom Line on LYFT
Lyft used investor money to create an unsustainable business model. It’s now caught among demands from workers, government and public investors for a piece of the pie.
There’s not enough pie. Drivers are manipulating the system to make extra money and riders are literally being raped. The scooters and bikes Lyft hoped would save the day don’t. They were recently banned near where I live.
Lyft has growth. Revenues doubled between 2017 and 2018. But operating losses skyrocketed right along with them, and in the March quarter this grew worse.
Lyft reports Aug. 7, with analysts hoping the March loss of $3.92 per share can be cut to $1.66, with a modest pick-up in revenue.
That’s not good enough. LYFT stock is running out of financial runway.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
