Uber Facing Critical Week as London Temporary Licence Due to Expire
Uber (NYSE:UBER) has had a pretty tough time of it recently as its vaunted IPO has led to a muted follow up in the market since it went public with the $45 placing price of the IPO trading underwater with the exception of a few days in June and July. At time of writing, this means the company has lost a staggering ~$30 billion in market cap since its IPO, eye watering performance for anyone who bought in initially.
Yet all is not lost. IPO investors would hopefully be eyeing up long term positions in what looks to be a utility company which everyone kind of feels they can’t live without. Even so, Uber is burning through cash at a somewhat alarming rate having reported earnings in August with a $5.24 billion loss although to be fair, almost $4 billion of that loss was from giving employees stock and options when it went public. After the earnings went public, the stock which had at least been within touching distance of its placing price plunged to the mid $30s and has stayed roughly there ever since.
Uber – The London Question
Well, this week could be another critical one for the company. After Transport for London (TfL) rejected Uber’s application to renew its licence in 2017 due to concerns around failings on background checks on its drivers where some were found to have serious criminal offences, a judge granted the company a temporary reprieve, giving it a 15 month temporary licence in 2018 which is due to expire on the 25th of September.
As was the case in 2017, if TfL decided to try to strip Uber of its licence completely, this would obviously result in appeals to the courts during which the firm would be able to continue to operate in the city. It seems unlikely that Uber would lose its licence entirely, it may be that TfL decides to keep ride hailing firms on a short leash and just keep giving them short term licences to operate so that they can continually review the practices of these businesses.
London of course is a major worldwide city and an important factor is that Uber is actually quite reliant on just a handful of cities as we discovered in its IPO filing papers. About a quarter of its business comes from just 5 cities: New York, Los Angeles, San Francisco, London and Sao Paulo. Given the regulatory battles it’s facing on multiple fronts, a loss in any one of those areas could be problematic for the business and its stock price. California has already struck back against the company recently in its passing of the AB5 action to classify drivers as employees (which we reported on here and here).
Uber – Bigger Picture: Gig Economy Workers’ Rights, Competition
Of course, Uber is facing competition, but the two topics of gig economy workers’ rights and competition may be wrapped up together. The AB5 law in California was seemingly aimed at Uber and Lyft (NASDAQ:LYFT) but there are similar battles Uber is facing on other fronts. In the UK, two drivers have brought a case against Uber also seeking classification as employees rather than self-employed workers who use the app. So far, the workers have won their case and subsequent appeals but Uber was encouraged at the Court of Appeal ruling where it became evident one of the judges hearing the appeal had sided with the firm and it was given permission to appeal to the UK’s Supreme Court.
In the US, Lyft is of course a competitor but Uber has major market share in most places it operates in. Bolt is a new ride hailing app in London and has apparently signed up 300,000 users but it’s difficult to compete with the global reach of Uber, particularly for people who travel frequently.
It’s worth keeping in mind that although Uber would likely have to pay more money to employees who were classified as such rather than contract drivers, with the cash reserves it has from its IPO and the utility view many have of it, the regulatory burden on anyone that wants to start up and compete against it is getting higher. That may mean difficulty raising cash and continuing operation in the space which could be a boon to the beleaguered firm as the industry consolidates and Uber looks to expand in other areas like with its Uber Eats offering.
Keep an eye on the result this week, continued operation in London is likely a given, even if TfL decides to strip Uber’s licence, it will still be able to operate while it appeals but any hint that it may actually have to cease operations in one of its larger markets would be yet another blow which could send the stock to new lows. Remember however that HSBC this week did give both Uber and Lyft a slight reprieve saying it thought regulatory concerns were priced in and upgraded both firms with a 32% and 35% uplift on current levels respectively.