After a rough start to 2020, investors are now increasingly optimistic about the ride-hailing service, Uber (NYSE:UBER). On November 9, the company’s shares spiked 7.38% and closed above its IPO price for the first time since going public. While this is great news for the company, business is still significantly lower than its pre-pandemic days. But recent events hint at better and brighter days ahead for Uber stock.
There are a couple of reasons for increased optimism towards Uber which is now 217% higher from its March lows. The recent gains can be attributed to the approval of Proposition 22 and news of Pfizer’s (NYSE:PFE) vaccine. Given that Uber is on a slow yet steady road to recovery, this is the perfect time to jump in on Uber stock.
Uber Stock Scores Big With Passage 22
Following the approval of Passage 22 by the California government, Uber stock rallied by 18% in the days that followed. The proposition essentially classifies app-based drivers as independent contractors and not employees. This is a huge win for the company as operating a traditional taxi business model comes with regulatory rules in high labor costs.
The Proposition allows gig-economy companies like Uber and Lyft (NASDAQ:LYFT) to preserve their tech-centric business models which are crucial for its valuation. Gig-companies spent nearly $200 million campaigning for the ballot- making it one of the most expensive in California. Ultimately, winning this vote allows Uber to rework its labor laws across the country.
Companies in the gig-economy will now be exempt from regulations that force them to treat drivers as full times employees. This is a testament to the fact that employees prefer flexibility over security benefits. However, Prop 22 does promise workers a minimum wage, healthcare options and vehicle insurance.
With the success of Prop 22 in California, Uber now plans to take its lobbying efforts global. If the company is able to replicate this win worldwide, it could make Uber the premiere ride-sharing company. Even with the challenges of the pandemic, the path forward looks bright for Uber stock.
The Road To Recovery
Despite a brutal Covid third-wave making its way across the nation, investors remain optimistic about Uber’s recovery. A number of recent events suggest that the company will continue to grow in the coming months and years. However, a short-term recovery is not in the cards.
Uber reported its third-quarter earnings earlier this month and the numbers were not too impressive. Revenue was down to $3.13 billion versus an estimated $3.20 billion and its rides-business decline by 52%. While shares did drop in the after-hours, it wasn’t all bad news for the company. In comparison to Q2, the negative margin for Uber Eats decreased to 16.1% from 26.2%. Additionally, the positive margin grew to 17.9% from 6.3% in Q2. While these values are nowhere near its pre-pandemic levels, it does hint at a slow recovery.
Adding to this optimism is the news of Pfizer’s Covid vaccine. After months of trials, Pfizer and BioNTech (NASDAQ:BNTX) announced that their vaccine is 90% effective. This raised hope among investors that life would soon be back to normal. The narrative that ride-sharing services will be in demand once again in a non-socially distant world has many betting on the company. Uber stock saw another spike in its share price following the announcement.
Experts believe that the return to a new-normal should bring Uber back on track by mid-2021. Given the time-frame for recovery, this would be the right time to buy the ride-sharing stock before prices go high once again.
The Bottom Line On Uber
With lots of reasons to stay optimistic, Uber stock sees a bright road ahead. But if you invest in Uber stock (which I think you should) don’t expect returns anytime soon. Even with the approval of a vaccine, experts believe it could take months before the entire population is inoculated. This also means a return to normal is not happening anytime soon.
Another element worth noting is that Uber Eats has performed well in the remote economy. When things go back to normal, people are more likely to hail a ride to a restaurant than order takeout. Uber Eats will experience a fall in demand in a post-pandemic world as people celebrate restaurant dining. Ultimately, investors need to be prepared for a trade-off between both entities. But Uber stock has a lot to look forward to, making this a worthy investment in my books.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 202