On Monday, a California judge ruled that Uber Technologies Inc. (NYSE: UBER) and Lyft Inc. (NASDAQ: LYFT) must classify their drivers as employees (as opposed to independent contractors) in a stunning preliminary injunction. Both stocks dropped about 2% on the news.
The ruling means these companies would have to provide their drivers traditional benefits like health insurance, workers' compensation, and more.
These additional benefits would become very big expenses to the already unprofitable businesses.
Lyft lost $2.6 billion in fiscal 2019. Uber lost $8.5 billion.
And neither appear to be close to profitability so far this year...
Lyft has already lost nearly $400 million in the first fiscal quarter of 2020 while Uber has lost $3 billion.
The combination of decreased ride-sharing due to COVID-19 and the California ruling yesterday doesn't appear to bode well for these companies in the near term.
The ruling could also affect other gig companies such as GrubHub Inc. (NYSE: GRUB), Upwork Inc. (NASDAQ: UPWK), and Fiverr International Ltd. (NASDAQ: FVRR), among others.
Both Uber and Lyft will appeal the decision over the next 10 days. So, there is still a chance the legislation doesn't pass or gets delayed for some time.
Regardless, if you own any of these stocks or are thinking about buying puts on them to profit on more downside selling pressure, you have to check out D.R. Barton, Jr.'s Markets Live stream from earlier today.
In the short video below, D.R. explains exactly what to do with Uber and Lyft stocks right now...
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