Uber (NYSE:UBER) stock and rival Lyft (NASDAQ:LYFT) were based on a myth.
The myth was that technology could turn laborers into management, at no cost to society.
That’s not true. When the normal costs of employment — like insurance — are placed onto workers, they’re eventually borne by society. This was laid bare by the novel coronavirus.
Lyft is expected to lose over $350 million or $1.08 per share when it reports May 6. Uber is expected to lose 79 cents per share, as much as $1.4 billion, when it reports May 7. Its “whisper number” is for an even bigger loss, 89 cents per share.
Wedbush Securities expects the second quarter for both companies to be even worse. The firm sees one-third of the “gig economy” disappearing over the next two years, with some workers never returning.
The real question is whether Uber stock and Lyft stock should exist at all, at least in their present form.
No Guidance
Neither Uber nor Lyft are offering guidance on 2020 numbers. Rides dropped off by about two-thirds during quarantine. Both companies have tried to provide drivers work through food delivery.
At the end of April, Lyft laid off 982 employees, about 17% of its workforce. It furloughed another 288. It also announced a 12-week pay cut for the rest.
Uber has yet to announce its plans. But it is expected to lay off 20% of its staff. CTO Thuan Pham has resigned, his engineering staff eviscerated, and 5,400 employees are expected to lose their jobs.
In addition to its own losses, Uber will report about $2 billion in impairment charges. These are losses in value from investments in Didi, Grab, Yandex Taxi and Zomato.
The company also hopes to walk away from its liability for Otto, a self-driving startup it bought from founder Anthony Levandowski. Levandowski stole his technology from Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Uber now claims it was defrauded by him.
Worse for Drivers
As bad as things are for the companies, they’re exponentially worse for drivers.
If Uber and Lyft drivers were employees, Uber and Lyft might be bankrupt right now. When an Amazon (NASDAQ:AMZN) worker gets sick, Amazon picks up the bill. When an Uber or Lyft driver gets sick, society picks up the bill.
Drivers are independent contractors. They’re on the hook for the costs of their cars even if no work is coming in. Most say their business is down 70%-80%, even with food deliveries. Under current law that’s just the way it is. Gains from running the company are privatized, belonging entirely to the employer. Losses are socialized, spread throughout society.
Unless a driver has set themselves up as a limited liability corporation (LLC), they could lose all their assets in bankruptcy.
That’s what the fight over AB 5, a California law classifying drivers as employees, was all about. Conservative activists want the law repealed to “restart” the state’s economy. But repeal won’t restart the economy. Only new demand will do that.
The question is, under what rules will the new gains be apportioned. Most Lyft operations are in the United States, while Uber operations are global.
The Bottom Line on Uber Stock
So far in 2020, Uber stock is down just 5% while Lyft stock is down by 35%. The average S&P 500 stock is down about 11%.
That means investors expect Uber stock to make it through the pandemic, but they have doubts about Lyft. Lyft lacks Uber’s scale and reach.
Uber Eats is that company’s back-up plan, but food delivery is competitive. Uber Eats is retreating from 8 global markets. In the U.S. it’s third, behind Grubhub (NYSE:GRUB) and privately held DoorDash.
Whatever emerges in ride hailing after the pandemic, it’s not going to be what it was. There’s more than business uncertainty here. There’s policy uncertainty. That’s why I’m on the sidelines regarding both these stocks, at any price.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
