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Breakingviews - Uber victory saves its model not its valuation

A sign marks a rendezvous location for Lyft and Uber users at San Diego State University in San Diego, California, U.S., May 13, 2020.

SAN FRANCISCO (Reuters Breakingviews) - Uber Technologies’ labor win only goes so far. California voters approved a ballot measure that exempts the ride-sharing firm from treating drivers as employees but requires it to pay some healthcare benefits and other perks. Uber avoided punishing costs. But the pricey political fight underscores how much the environment for the shared economy has changed.

The most expensive state ballot campaign in California history reflects the stakes. Uber, smaller rival Lyft, food-delivery service DoorDash and other similar firms have spent about $200 million, while opposing union groups doled out about $20 million. The push by the companies paid off on Tuesday night, with 58% of voters backing their initiative.

The measure stops short of forcing Uber to offer perks employees often get, like sick leave. And Uber won’t incur the full $500 million a year that Wedbush Securities had estimated a full-blown change to worker status would have cost.

But what is a start for workers is still something of a cost for Uber. For example, driver contractors who work at least 25 hours a week will get healthcare subsidies equal to 82% of the average premium for each month.

So the victory for Uber and its peers is relative. The lockdowns prompted by Covid-19 have kept people from not only going out and about, but using shared rides services, too. Uber’s food delivery service has helped close the gap. But Lyft hasn’t been so lucky.

Both firms are still incurring big losses, even under conditions in which drivers were contractors and benefits were mediocre. Uber’s current $63 billion market value is a far cry from its once vaunted $100 billion price tag before its 2019 initial public offering. While its stock has done well since the beginning of the year, up about a fifth, Lyft’s 40% decline suggests that all is not well.

As the U.S. state with the largest economy and population, California’s policies often have a national effect. Uber’s success could help it in similar labor fights in New York, Congress and elsewhere. Yet even if similar changes in other states fall in Uber’s favor, the relative win shows that the gig might be up.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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