Uber ’s shares hit record highs last month, as investors saw nothing but open road ahead with the pandemic easing and the world opening back up. Now a court ruling could make for an unforeseen roadblock.
After losing a recent legal battle in the U.K., Uber said it would reclassify its ride-hailing drivers as “workers” there. While the new classification falls short of full-blown employee status, it differs from how California voters elected to treat Uber’s drivers and other gig-economy workers, who are treated as independent contractors in the state. It also comes with added costs that could derail Uber’s profitability timeline as it races key U.S. competitor Lyft out of the red.
As a result of the reclassification, Uber said it added vacation pay and pension contributions for its ride-hailing drivers in the U.K, effective Wednesday. In an 8-K filing on Wednesday, Uber said it doesn’t currently expect those costs to alter its previous forecast for adjusted earnings before interest, tax, depreciation and amortization for the first quarter or the full year. Uber said previously it should achieve break-even on that basis at some point this year.
Wall Street is beginning to see cracks in Uber’s logic, though, sending shares down 5% on Thursday. Before the U.K. ruling, analysts were forecasting that Uber will still be loss-making this year, but post adjusted Ebitda profits of $9 million in the third quarter and $190 million in the fourth quarter, according to consensus estimates from FactSet. The new classification won’t help, according to Morgan Stanley analyst Brian Nowak, who estimates the new U.K. compensation changes will cost Uber roughly $250 million to $350 million each year for 2021 and 2022.
Because the U.K. court’s ruling dealt only with ride-hailing drivers, classification of Uber’s Eats drivers won’t be affected. Furthermore, Uber said its U.K. mobility business is a relatively small part of its overall business, accounting for just 6.4% of its global mobility gross bookings last quarter.
