The Department of Labor Proposal a Case of Déjà Vu for Uber and Lyft Says Analysts By Investing.com


© Reuters. The Department of Labor Proposal a Case of Déjà Vu for Uber and Lyft Says Analyst

By Sam Boughedda

The U.S. Department of Labor (DOL) issued a proposal on Tuesday that broadens the framework and may classify gig economy workers, for example, Uber (NYSE:) and Lyft (NASDAQ:) drivers, as employees rather than contractors.

The proposal widens the framework to determine whether workers under the FSLA are classified as employees or Independent Contractors (IC) at the Federal level.

Following the news, Citi analysts said in a note that it potentially accelerates the path to a third classification of workers beyond employees and contractors.

“Key here, in our view, is that we believe States can still enact their own laws for IC’s and we note California’s Prop 22 and IC classification in Washington State can act as a framework for other States going forward. While we recognize the risks here, with Uber shares -10% and DoorDash shares -6% yesterday, we believe the risk-reward is positive as demand for Uber mobility continues to rebound while Food Delivery through Uber Eats & DoorDash is increasingly a weekly habit,” wrote the analysts.

Meanwhile, in a note on Uber, BTIG analysts said that based on past conversations with Uber, it assumes it would maintain take-rate.

“That means that fares would have to come up and driver count down to absorb the higher costs,” wrote the analysts. “We bring fares up by 50%, rides down by 50% and take driver count down 75%. The outcome would be bookings down by $2.7B, revenue by $665M and EBITDA by $354M. The US delivery business is bigger, so we would put the impact of full driver reclassification in the US at something like ~$1B to EBITDA.”

Finally, Bernstein analysts said it was a case of déjà vu. “Here we go again,” they declared. “While the headlines aren’t favorable, there is no immediate change to the operating models of these businesses.”

“The DOL’s proposal is the first step in a longer process before any final determination is made. There will now be a 45-day comment period for public feedback, which will push potential enactment of the rule to 1H23 at the earliest,” the analysts added. “The companies have noted that the proposal looks similar to the rule that existed under the Obama Administration, which did not result in any reclassification of gig workers at the federal level.”

Lyft shares are up 6.9% Wednesday, while Uber has gained over 4%.

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