Shares of ride hailing and food delivery company Uber Technologies (NYSE:UBER) have hit the skids. A judge in California recently struck down Proposition 22, a ballot initiative that exempted Uber from classifying its drivers as full-time employees. The ruling is significant for gig worker stocks.
The decision means that Uber and other gig economy companies could now be forced to provide the people who work for them with a minimum wage, overtime pay, workers’ compensation, and the right to unionize.
Essentially, the court ruling throws Uber’s entire business model into disarray. Other gig companies are concerned about the California verdict on Proposition 22 and say they plan to join Uber in appealing the decision. But there’s no guarantee they’ll win on appeal.
Uber and other companies have already spent an estimated $200 million in an effort to exempt their drivers from being classified as “employees.” UBER stock has fallen 10% since the California court ruling and recently traded around $40 per share.
As Uber stumbles, we look at three other gig worker stocks investors might want to sell:
Gig Worker Stocks to Sell: Airbnb (ABNB)
Our first gig worker stock is Airbnb. Anyway you look at it, Airbnb stock has been a disappointment. After going public last December in one of the biggest and most highly anticipated stock market debuts of 2020, ABNB stock has underperformed and disappointed investors.
In the past six months, the company’s share price has fallen 21% to $155.25. While the stock is up 11% from its first trade on Dec. 11, 2020, the shares have cratered 29% since peaking at just under $220 this past February. The decline has been especially frustrating given that the get out and travel trade is now in full swing with the economy reopening and summer vacations underway.
A quintessential gig economy stock, Airbnb enables people to make money by renting out their home or other property to tourists and visitors. The company and its shareholders were expected to thrive as people avoided crowded hotels in favor of renting out private homes. Yet this has not happened.
The reason appears to be that Airbnb carries the hallmarks of a fast growing start-up company – unprofitable, lots of debt and a high valuation at 64 times trailing free cash flow of $1.5 billion.
While some analysts rate the stock a “buy” and have price targets above $170 a share, there is no indication that ABNB stock will breakout anytime soon. It’s a sell.
Fiverr had a great run in 2020, with its share price jumping an astounding 741% for the year. However, after peaking at an all-time high of $336 per share in February of this year, FVRR stock has plummeted 47% and now trades at $179.27.
It’s been a steep fall from grace and the share price shows no signs of a sustainable recovery. The gig economy outfit that connects companies with freelance workers around the world has clearly fallen out of favor with investors after a spectacular run during the height of the global pandemic.
Investors large and small appear to have been turned off by Fiverr’s disappointing earnings and lowered forward guidance.
In some respects, Fiverr is a victim of its own success. For the second quarter of this year, the Israeli company announced that it generated $75.3 million in revenue, up 60% year-over-year. However, Fiverr’s revenue grew 82% between the second quarters of 2019 and 2020.
Analysts and institutional investors see growth slowing down and have been aggressively selling FVRR stock. Retail investors would be smart to follow suit with this gig worker stock.
Gig Worker Stocks to Sell: Lyft (LYFT)
Uber isn’t the only gig company focused on ride hailing and food delivery that has been walloped this year. Lyft has also had a hard go of it so far this year.
In the past six months, LYFT stock has fallen 17% to $47.55 a share. The stock is now 40% below its all-time high of $78.29 reached in March 2019 shortly after the company went public. The share price has steadily eroded over the past two years and shareholders could be waiting a while for Lyft’s stock to hit a new all-time marker.
The San Francisco-based company continues to struggle with several issues. Lawsuits concerning whether gig workers can be classified as independent contractors or need to be identified as employees continue to make their way through the courts in U.S. states and foreign countries all over the world. A change in classification from independent contractor would mean higher labor costs.
Also, like many gig economy companies, Lyft is finding it hard to turn a profit. The company has said it should be out of the red next year (2022), but this is not a certainty.
As it continues to face headwinds, investors would be best advised to steer away from LYFT stock.
Disclosure: On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.