Shares of Uber jumped over 10% on Wednesday
Outcome of California referendum supports ride-hailing companies
Lower employment costs for Uber and others
Referendum may serve as a hint for other states
Q3 earnings release today after Wall Street session
While US presidential and congressional votes were the most important ones in US elections, there were also a number of local referendums held on Tuesday. Uber Technologies can be seen as a clear benefactor of California's referendum and it was reflected in over 10% share price jump during Wednesday's trading. Another key event for the stock - Q3 earnings release - comes after a close of Wall Street session today.
California backs gig economy in a referendum
Winner of the US presidential elections is yet to be called but Uber can already be called one of the winners of a local referendum in California. Citizens of the state voted on the fate of the so-called gig economy. More precisely, people of California were asked whether ride-hailing companies, like Uber, should be allowed to hire drivers as independent contractors rather than employees. Vote showed that the 58% majority supports such an option.
Why does it matter?
Drivers hired as independent contractors incur smaller costs for the company as they are not entitled to employee benefits. This is a key for Uber as the on-demand nature of its services would be hard to satisfy with employee contracts because it would likely lead to a much smaller number of drivers and, in turn, lower quality of services (i.e longer waiting times). When results of the referendum take effect drivers will still be entitled to guaranteed wage while working or health insurance but they will not be entitled to paid sick leave or unemployment insurance among others.
Is it only limited to California?
The answer is yes. However, the consequences of the referendum outcome could have a broader reach. California passed a law that barred gig economy companies from classifying drivers as independent contractors. In case people voted not to overturn that law, other US states could follow suit and also force companies like Uber to hire drivers as employees and provide them with a full range of employee benefits. Now, the chance for such an outcome has decreased significantly.
While the outcome of the California referendum brightened the outlook for ride-hailing companies in the United States, traders should remember that such entities are still mostly cash-burning machines. Uber will provide an update on its business today after close of the Wall Street session, when it reports Q3 earnings. The company is expected to report a net loss of $875 million, smaller than $1136 million reported in Q3 2019. On the other hand, revenue is expected to be 26% YoY lower at $2.8 billion. Impact of the California referendum outcome is likely to be discussed during the earnings call.
Uber Technologies (UBER.US) opened with a big price gap yesterday following results of the California referendum. Price painted a fresh 2020 intraday high at $42.13 but gave back a part of gains later on and finished below pre-pandemic peak ($41.75). Note that even after recent gains, Uber still trades below its $45 IPO price. Two resistance levels to watch ahead are $45 and $49.60 (127.2% exterior retracement of coronavirus drop). Source: xStation5
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