Although the coronavirus pandemic continues to rear its ugly head, I’m convinced that certain innovations, such as ride sharing will stay with us. Frankly, the cat’s out of the bag on this one. But in terms of individual companies like Uber (NYSE:UBER) or Lyft (NASDAQ:LYFT)? Despite recent momentum in Uber stock — only publicly traded since last May — I’m still not convinced that the worst is over.
Similar to airliners and cruise ships, Uber stock is a travel-based investment. Right now, there’s not a whole lot of traveling going on. With the infectious COVID-19 wreaking havoc in almost every country on the globe, avoidance has become paramount. In this environment, no one wants to risk getting sick, particularly with hospitals in major metropolitan areas being overwhelmed with patients.
More critically, several states have issued mandatory shelter-in-place orders. At first, California took the lead, followed soon thereafter by New York. At time of writing, 261 million people in at least 31 states have been requested to stay at home.
Obviously, several businesses have closed along with many public buildings and institutions. Therefore, even if people wanted a ride, not many options exist. Sadly, this situation leaves many Uber drivers in limbo. Without fares, most cannot afford to cover basic expenses. After all, it’s not like the sector is a bonanza for the rank-and-file drivers.
To the company’s credit, many will be eligible for 14 days of sick pay for coronavirus-related circumstances. Admittedly, this is a solid PR boost for an organization that is sorely lacking in them. However, I just don’t see it moving the needle for Uber stock, which lost a bit more than 6% of its value in the just-ended first quarter of 2020, compared to an 18.7% drop in the S&P 500 index.
What the underlying company needs is consumer demand. And really, who knows when that will return?
Global Ripple Effect Will Hurt Uber Stock
One of the factors that turned me onto ride sharing was that it centralized the business of transportation under a single corporate umbrella. In other words, drivers have an incentive to provide riders with the best service possible. This isn’t only for the possibility of tips. Rather, if a driver doesn’t provide great service, Uber will hear about it — and there goes an income stream!
As well, riders have an incentive to not act like nut cases. Otherwise, would-be drivers could look at your profile and not bother taking a chance. Motivated by the almighty dollar and held to account by an invisible watchman, Uber created a beautiful system.
Because of its remarkable platform, I could go to any foreign country or distant city and take a ride, confident that I won’t be ripped off. Again, if something unpleasant occurs, I can report it. This kept honest (and even dishonest) people honest. Prior to the pandemic, this mechanism was one of my bullish talking points for Uber stock.
However, with the travel industry all but shut down, I’m not sure where Uber stock goes from here. For instance, ride sharing became so popular at airports throughout the U.S. that many imposed restrictions on drivers. Nevertheless, that hadn’t stopped those eager for a fare to brave the elements. Simply, it’s people going to where the demand is greatest.
Now, there’s no place where drivers can wait to reliably pick up a fare. And that’s just in the U.S.
Throughout many European countries, coronavirus cases are worsening. Logically, this progression negatively affects Uber stock because it directly impedes management’s expansion efforts. Should this situation get worse – and I think that’s the reasonable assumption – both Uber and Lyft will face turmoil.
Alternative Businesses are not Real Solutions
When life gives you lemons, make lemonade. Sure enough, Uber, and to some extent Lyft, is taking this age-old advice to heart. Though most restaurants have closed their dining areas, many offer takeout options. Theoretically, this should bolster the company’s Uber Eats business.
Unfortunately, this is not a viable solution for the coronavirus. Wedbush analyst Daniel Ives noted that Eats has been a “money-losing” venture which has hurt the company’s share price. Further, Ives states that the core ride sharing business represents Uber’s bread and butter.
Plus, what would the ride-sharing ecosystem look like after the virus fades away? According to a St. Louis Federal Reserve Bank estimate, we could suffer job losses numbering 47 million, translating to an unemployment rate of 32%.
No one knows for certain if we’ll encounter such devastation, nor does anyone know how long such an economic crisis will last. One thing is for sure though: ride sharing is an easy item to strike off the family budget. And that’s one more thing to worry about for Uber stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
