Categories Analysis, Technology

Lyft stock gains for third day after favorable labor board decision

After the disappointing Wall Street debut last month, shares of Lyft (Nasdaq: LYFT) have continuously struggled to find a footing. Though the stock staged a recovery and moved up above the IPO price, after staying low for nearly a week, the momentum was not sustained.

Lyft received a boost this week after regulators ruled that drivers partnering with ride-hailing companies are independent contractors, not employees. The government made the observation in a lawsuit involving online taxi firm and Lyft’s competitor Uber.

Lyft's Key Business Metrics - 1Q19

Lyft’s shares gained more than 3% during the early trading hours of Thursday, continuing the uptrend that started a couple of days ago. They have advanced nearly 14% so far this week after ending the last week on a dismal note – hitting a record low. The terms of partnerships with drivers and their compensation is a crucial factor that determines the financial health of taxi operations.

Lyft got a boost this week after regulators ruled that drivers partnering with ride-hailing companies are independent contractors, not employees

For both the managements of ridesharing firms and investors, lack of clarity over driver recognition has been a cause for worry and for that reason the market keeps a tab on the dynamics regularly. The advisory memo from the National Labor Relations Board came as a morale booster for investors as it could stop drivers from creating trade unions. Several lawsuits are currently pending, in which drivers seek to be recognized as regular employees.

Earlier this month, Lyft stock crashed after the company reported a massive loss for the March quarter, in its first quarterly report after going public. The $9.02-per share loss was sharply wider than the loss estimated by analysts, though revenues nearly doubled to $776 million.

The government’s decision has brought a big relief to Uber, which has been facing multiple cases for allegedly misclassifying employees as contractors. The company in a statement expressed its resolve to step up the quality of independent work and ensure flexibility in the terms of partnerships with drivers and couriers.

The general outlook for the taxi-hailing sector is quite bullish, given the opportunities it offers beyond ridesharing. While preparing for its public listing, Lyft recently ventured into bike-sharing business, which has remained an unexplored area for long. Currently, it is doing the groundwork to foray into autonomous transportation.

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