Ridesharing giants Uber (
UBER Quick Quote UBER - Free Report) & Lyft ( LYFT Quick Quote LYFT - Free Report) are catching a massive bid with a big election day win.
California's Prop 22 was passed on Tuesday, representing a landmark win for the US's growing 'gig economy.' Prop 22 will allow companies like Uber, Lyft, Postmates, and other app-based driving platforms to bypass laws requiring the enterprises to classify their workers as employees.
If this bill failed to pass, it would have forced these businesses to provide its drivers with employee benefits, minimum wages, vacation/sick days, and many other costly measures. These measures would have been detrimental to Uber and Lyft's battle to profitability in their home state.
This win in Cali combined with the broader tech surged yesterday, propelling UBER over 14%, while LYFT lifted more than 11%.
Winning Prop 22 in California is a relief for Uber & Lyft stakeholders. Despite what lawmakers might think, it would appear that drivers don't want to be classified as employees because it would reduce the flexibility of the current structure.
Drivers can work at their convenience and with as many app-based platforms as they want. California lawmakers were attempting to eliminate this flexibility to provide what they saw as stability to gig workers.
Passing this employee exemption proposition in California's progressive state is sending a message across the country that the people want a 'gig economy.'
Uber kicks off ridesharing's Q3 earnings season after the bell tonight, and the street is expecting it to narrow its losses. According to Zacks Consensus estimates, analysts expect UBER to deliver an EPS of (-$0.59) on sales of $3.13 billion.
The pandemic has been revealing concerning the durability of this business through thick and thin. Uber's diverse portfolio that includes food delivery segments Postmates and Uber Eats has been a tremendous hedge for the company in these tumultuous times and fear-ridden times. Uber has proved its dexterity this year, and I like this stock as a buy, but I'm not going to chase this rally. I will let the dust settle before I put on any positions.
Gig Economy Stocks
The global pandemic has put the entire economy online. The US's largest cities and metropolitan areas are locked down, making remote working a necessity. Full-time workers are getting laid off by the millions, and what better place to post your lucrative services than a digital freelance site. I expect that supply on freelance platforms would increase as unemployment grows.
With companies chopping overhead, they need services that they can no longer get internally, so they will use freelance professionals for their immediate project requirements. I suspect that demand will be temporarily hampered as businesses across the globe suspend extra spending during this uncertain period.
As the economy opens up and business is revived in the coming months, I presume that a lot of companies will look to gig workers for project needs as opposed to hiring an expensive full-time employee.
I see the pandemic accelerating the global trend towards a gig economy.
Upwork ( UPWK Quick Quote UPWK - Free Report)
Formerly Elance-oDesk, Upwork is a digital freelance platform where businesses can hire professionals for short- and long-term projects. Upwork is trusted by more than 5 million companies worldwide, including Microsoft (
MSFT Quick Quote MSFT - Free Report) , Airbnb, and GoDaddy ( GDDY Quick Quote GDDY - Free Report) .
This business has been around for more than 2 decades and continues to expand its business consistently. Last night the enterprise illustrated another record quarter with an accelerating year-over-year sales growth of 23% and a bottom-line closing in on profitability.
UPWK is up over 45% in morning trading. I wouldn't chase this price surge, but this is a stock to keep an eye on as it stakes its claim in the gig economy.
Fiverr ( FVRR Quick Quote FVRR - Free Report) )
Fiverr is a much more growthy play in the digital freelance segment, with a parabolic topline that demonstrated 88% year-over-year growth in its earnings release last week. This stock is trading at 20x price to forward sales, which is quite rich and makes FVRR volatile.
Fiverr is set up like an e-commerce platform only instead of selling products; it is selling services. The services range from website design to business consulting. Each "gig worker" has a starting price and a star rating, which include written reviews, allowing users to sort the studs from the duds.
This new generation of workers loves flexibility (aka ease & convenience) and the ability to get paid & recognized for their results. Fiverr offers people unlimited flexibility, where individuals decide their hours and can work from wherever they want. It also gives workers the ability to gain experience with each unique project providing them with new or honed skills.
Fiverr is great from a business perspective as well, providing them with financial flexibility. This gig economy allows small businesses to cut overhead by reducing the full-time staff and hiring gig workers whenever needed. Fiverr is set up to ensure that these needs are met promptly.
Fiverr continues to add service sections, with over 100 new categories in 2019 alone. This vast catalog of service ensures that workers' skills are effectively matched with buyers' needs. Fiverr has been successful in acquiring new buyers as well as maintaining loyal users.
I love this stock, but its 608% rally so far this year makes me very apprehensive about chasing this rally. FVRR's increasingly bright future has caused this stock to trade up to an excessively rich valuation. I would be looking to buy this stock on a pullback.
The pandemic has created the perfect stage for gig platforms to flourish. The rapid digitalization we've seen in 2020 has formed a 'new normal' where gig economies will thrive.
Uber is my pick for the ridesharing battle. I would continue to keep an eye on UPWK and FVRR to buy on a market correction.
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