The company’s stock rose nearly 15% Wednesday on news that the Proposition 22, or “Prop 22,” had passed.
Here’s where Uber stands and what analysts are watching for.
One cloud over its business has cleared
Tom White, an analyst at DA Davidson, told CNN Business that the regulatory cloud when it comes to driver classification has been “backburnered” with the California vote.
Prop 22 was designed to side-step a new California law, Assembly Bill 5 or AB-5, which went into effect on January 1 and codifies an “ABC” test to determine if workers are employees who are entitled to labor protections and benefits. Classifying their drivers as employees has long been viewed as a potential existential threat to Uber, which scaled its business with a massive fleet of workers it treated as independent contractors, shirking the responsibility of costly benefits entitled to employees, such as a minimum wage, overtime, paid sick leave and unemployment insurance.
Uber, Lyft, DoorDash, Instacart and Uber-owned Postmates sunk more than $200 million to fight Prop 22 because had it failed, the company would have had to fundamentally alter its business model. BTIG analyst Jake Fuller wrote in an investor note Wednesday that if it had failed to pass, it would likely have meant Uber would cut drivers and increase fares to offset the cost of reclassifying drivers as employees. It “would have been a drag” on revenue and earnings, he wrote.
In an industry note ahead of Election Day, Wedbush analysts wrote Monday that not passing Prop 22 “will likely lead to a net-negative financial impact in California, and potentially other states.” Wedbush analysts reacted to the vote, saying “this removes a significant overhang and dark cloud for the likes of Uber and Lyft.”
Prior to the outcome of the Prop 22 vote, Wall Street “had concerns that other cities and states could follow California on the employee model shift if Prop 22 did not pass,” they wrote.
DA Davidson’s White said he expects the Prop 22 model which defines a “new class” of workers will be one “the rest of the nation ends up following.”
When will Uber turn a profit?
Investors are eager to hear if the company has any updates on its timeline to achieving profitability on an adjusted basis, which it previously projected to investors that it will do by sometime next year.
White said he is watching to see if Uber reveals to what extent growth in its delivery business, Eats, is having on the company’s overall race to profitability. Investors are carefully monitoring the business given how competitive the delivery marketplace is — some competitors in the US include DoorDash, and Grubhub — and how businesses compete on driving down prices to win customers.