Owning Uber Stock Doesn’t Make Sense in a Locked-Down World

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The novel coronavirus is still top-of-mind for stock traders and for the world’s inhabitants generally. A handful of stocks, sometimes known as “coronavirus stocks,” are actually benefiting from the pandemic. But Uber (NYSE:UBER) stock is definitely not among them.

Owning Uber Stock Doesn't Make Sense in a Locked-Down World

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The number of coronavirus cases worldwide has exceeded one million. Plus, the fatality count has tragically surpassed 60,000. It’s understandable that people are reluctant to leave their homes. If driving feels like a game of roulette, then Uber drivers could demand more pay or simply quit. Moreover, it’s going to be more difficult to retain a client base if people are self-quarantined.

Ride-Sharing Business on the Brink

Much fuss has been made about how cruise lines, hotels and airlines have struggled amid the spread of the coronavirus. Let us not ignore the ride-sharing industry, which also depends on people’s willingness to leave their homes and spend money.

Both Uber and ride-share rival Lyft (NASDAQ:LYFT) have suffered losses in fares since the viral outbreak began. In fact, in recent weeks the total value of the fares collected from passengers by Uber and Lyft has been cut in half year-over-year.

During Uber’s first quarter of 2019, the company generated $800 million in monthly passenger revenues (calculated as revenues collected from passenger rides after the drivers have been paid). For this year’s first quarter, that monthly revenue figure is likely to drop to $450 million per month.

You might hear arguments that Uber should do well during the spread of the coronavirus because people are staying home and ordering food deliveries. That might help somewhat, but it’s not likely enough to make up for a near-50% reduction in ride-hailing revenues. Besides, with some restaurants struggling to stay in business, Uber stock investors shouldn’t count on them to be their savior.

Hazards for Drivers

Along with the risks posed to passengers, the coronavirus also presents hazards to Uber drivers. It could even be argued that working as an Uber driver is among the riskiest jobs nowadays. Driving around for hours and giving rides to strangers is a dangerous business during a global pandemic.

Therefore, if the spread of the virus gets worse, there could be not only a lack of riders, but also a lack of willing drivers. Uber stock bulls might not have considered that both the demand and the supply could be constrained. Holding the stock is tantamount to betting that Uber will recover soon, but that’s not a bet worth taking.

Complicating matters further is the emergence of a national conversation about whether gig workers, including Uber drivers, should receive benefits. Uber hasn’t provided sick pay or workers’ compensation to its drivers, but that could change in the near future if enough drivers demand these benefits.

Senator Elizabeth Warren recently wrote a scathing letter to the chief executive officers of Uber and other companies that rely on gig workers. In it, Warren declared, “Delivery workers are experiencing serious health and economic vulnerabilities as a result of their jobs, and your company is failing to provide appropriate and necessary protections.”

Uber may feel pressured to start providing sick pay and other benefits to its drivers soon. This might be considered a good thing, but it would be costly to the company from a fiscal standpoint. That, in turn, could put downward pressure on the price of Uber stock.

The Takeaway on Uber Stock

Revenues generated from riders are declining while Uber drivers might not be willing to accept the occupational hazards for much longer. It’s best to avoid Uber stock until the ride-sharing economy stabilizes, which might not happen for a long time.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


Article printed from InvestorPlace Media, https://investorplace.com/2020/04/owning-uber-stock-doesnt-make-sense-in-a-locked-down-world/.

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