Lyft (NASDAQ:LYFT) hasn’t managed to catch much of a break since its initial public offering (IPO) on March 28, 2019. Since then, Lyft stock has been repeatedly walloped to the point that it is down 40% post-IPO. But, more than a year later, has the popular ride-sharing company’s luck finally improved?
The passing of California Proposition 22 in November assuaged investors’ concern about the stock. The proposition alters the impact of Assembly Bill 5 (AB5), which passed in 2019.
Heading into 2020, AB5 caused much pain for Lyft stock. The law threatened gig-economy stocks like Lyft by requiring contract workers in California be given healthcare and workers’ compensation benefits. It essentially reclassified gig workers as employees. This, in turn, put a major dent in Lyft’s business model, which relies on its contract workers — non-full time employees — to stay afloat.
While the original way Lyft operated was arguably detrimental to the workers by design, it certainly benefited the company. In turn, it also benefited stockholders. However, AB5 threw that dynamic into chaos, altering everything investors might have expected from Lyft prior to the bill’s passing.
And that wasn’t the only reason investors left Lyft stock in the doghouse for so long.
In this turmoil, it looked like Lyft was in deep trouble. Work-from-home initiatives kept many people off the roads for business and socialization. (These are both huge parts of the ride share business.) Yet, Lyft stock didn’t die off completely. In fact, it’s up nearly 9% year-to-date.
Lyft Is Set to Dust Itself Off Heading Into 2021
While it’s not a blockbuster performer like Zoom (NASDAQ:ZM) or Nio (NYSE:NIO), it’s still respectable in a tumultuous year like 2020. That’s especially true for a company that started the year with a potentially doomsome threat to its business model — a threat that seemingly butchered many initial investment theses.
So that leaves us with a question: Is Lyft stock worth a buy now?
While the threat of AB5 was significant, both Lyft and Uber (NYSE:UBER) managed to avoid the mandates of the law for much of 2020. A judge finally ordered the companies to adhere to the law in August. However, Proposition 22 effectively reversed the impact of the bill on these companies.
Companies like Lyft and Uber are no longer required to classify their workers as employees in the state of California. Yet independent contractors are granted additional protections and benefits not previously mandated. With that post-IPO drama out of the way, things are starting to brighten up for Lyft.
Analysts are also warming up to Lyft stock again. Piper Sandler analyst Alexander Potter argues that “positive regulatory dynamics along with Lyft’s improved cost controls could spur earnings upside for the company.” This led him to upgrade the stock from neutral to overweight.
Furthermore, although the coronavirus took a toll on its business, Lyft was already well-positioned to endure. This reality is supported by its latest earnings results. For example, its “[t]hird-quarter revenue almost halved to $500 million from $955.6 million, but rose 47% from the second quarter.”
The Bottom Line on Lyft Stock
Looking at the latest earnings report, the coronavirus clearly caused significant damage. But that damage isn’t permanent. The core issue bearing down on Lyft — AB5 — has lost much of its threat factor thanks to Proposition 22. Now, some of the longer-term catalysts that separate Lyft from its key rival, Uber, have time to shine — namely, the company’s work in developing autonomous vehicles.
Of course, whether that pursuit proves profitable is still up in the air. But after staving off two potential death blows, the future of Lyft stock is certainly more promising than before.
Moving forward, investors should pay close attention to how the company operates in the new normal. Is it still demonstrating an ability to recover? Right now, I’m cautiously optimistic. It might not yet be completely stable, but it looks like Lyft has at least found some of its footing again.
Of course, on the other hand, whether you can accept how the business treats its workers is another story entirely.
On the date of publication, the author responsible for this article did not have (either directly or indirectly) any positions in the securities mentioned in this article.