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Uber-Lyft ETFs Caught Between Earnings Gain & Likely Labor Rule

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Shares of Lyft (LYFT - Free Report) and Uber (UBER - Free Report)  have been falling in recent trading after Biden Administration’s Labor Secretary Marty Walsh said in a recent interview that most U.S. gig workers should be considered as employees and receive related benefits. This was against a Trump-era rule that had allowed companies like Uber and Lyft tag their gig workers as independent contractors instead of employees.

 "By withdrawing the independent contractor rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect," Labor Secretary Marty Walsh said in a statement, per a Reuters article. He went on saying “too often, workers lose important wage and related protections when employers misclassify them as independent contractors.”

Against this backdrop, Uber and Lyft came up with their earnings wherein Uber reported mixed results and Lyft surpassed on both counts.

Inside the Earnings Releases

Uber Technologies Inc. incurred a loss (excluding 36 cents from non-recurring items) of 42 cents per share in the first quarter of 2021, narrower than the Zacks Consensus Estimate of a loss of 56 cents. Moreover, the amount of loss narrowed year over year.

Total revenues of $2.90 billion missed the Zacks Consensus Estimate of $3.25 billion and declined year over year due to coronavirus-led weakness in the ride-hailing segment. The top line and ride-hailing revenues were hurt by a $600-million accrual related to the historical claims settlement for its U.K. drivers following their reclassification.

Delivery revenue outperformed its core ride-hailing business at $1.7 billion, compared with $853 million. Uber said the Eats segment revenue was up 28% quarter over quarter.

Despite reporting mixed results and improving business conditions, shares are falling due to prospective changes in labor laws. Shares slumped 8.9% post release of earnings.

Lyft Inc. incurred a loss (excluding 95 cents from non-recurring items) of 36 cents per share in the first quarter of 2021, narrower than the Zacks Consensus Estimate of a loss of 54 cents. Moreover, total revenues of $609 million surpassed the Zacks Consensus Estimate of $556.8 million. Following this better-than-expected performance, shares of the company gained 6.1% in after-hours trading on May 4.

The top line, however, declined 36.3% year over year due to a 36.4% drop in Active Riders (riders who take at least one ride during a quarter on Lyft’s multimodal platform through its app). Active Riders totaled 13.49 million in the quarter under review. This San Francisco-based company’s revenue per active rider inched up 0.2% year over year to $45.13.

With continued recovery in rideshare rides, Lyft’s first-quarter performance improved sequentially. Total revenues increased 7% from the fourth quarter of 2020 with 7.5% rise in Active Riders. During the first-quarter conference call, the company stated that it expects ride volumes to continue to improve as more Americans get vaccinated and coronavirus-led restrictions ease. It remains confident of being able to achieve adjusted EBITDA profits in the third quarter itself. Shares lost 11.4% post release of results.

ETFs vs. Stocks: Which Should You Pick?

Investors may be disappointed with the prospective labor laws but Uber and Lyft’s steady improvement can’t be ignored, especially given the economic reopening. Sooner or later, investment in these ridesharing companies should pay off. Lyft has a Zacks Rank #2 (Buy) and Uber has a Zacks Rank #3 (Hold).

But investors, who are having doubts over Lyft and Uber, may give a thought to the fund, Renaissance IPO ETF (IPO - Free Report) . The ETF has considerable exposure to Uber and small exposure to Lyft. It tracks the rules-based Renaissance IPO Index, which is a portfolio of new U.S.-listed IPOs of companies whose unseasoned equities are under-represented in core U.S. equity indices. Meanwhile, companies that have been public for two years are removed at the next quarterly review.

The fund ETFMG Travel Tech ETF (AWAY - Free Report) is also a good bet as it has 4.59% focus on Uber and 3.71% exposure to Lyft.

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