IPOs loom – among them, of course, the long-awaited debuts of Lyft and Uber. The two ride-hailing giants have raised billions of dollars, sparking valuations in the tens of billions (and, in Uber’s case, the valuation stands at about $120 billion, according to recent reports). Beneath the excitement (or lack thereof) that may greet public listings on exchanges, the fact remains that businesses lie behind stock prices.
Profits are key to sustained lofty multiples that may be assigned to valuations, which in turn keep stock prices high.
To that end, reports came earlier this month that Lyft will eventually turn a profit. In fact, as noted in CNBC, the company has been telling investors it will eventually realize EBITDA margins of at least 20 percent (we at PYMNTS jump in here to define EBITDA as a rough measure of operating cash flow).
There are, of course, several ways to turn a profit. One way is to goose the top line. That comes with higher volume or price increases (which might be deemed mutually exclusive). The fact remains that if Uber and Lyft boost prices, consumers may balk.
Another way to enhance margins is to cut operating costs. One key cost, of course, ties into labor. And as reported by the Los Angeles Times, pay cuts are in the offing in Los Angeles County and parts of Orange County, with Uber’s rates being taken down from 80 cents to 60 cents a mile.
The news outlet reported that in retaliation, some workers are primed to go on strike (with recruiting efforts underway for drivers at Los Angeles International Airport), and will refuse to drive for either of the ride-hailing giants. The strike would come two years after a similar move by some drivers to protest classification as independent contractors.
This time around, the rallying cry to strike is centered around compensation. The striking drivers, likely to number as many as 3,000, are advocating a 25 percent boost in Uber wages, which would be comparable to rates paid at the end of last year. Uber has said that higher-per-minute rates and driver promotions would take driver earnings to levels comparable to those seen last year.
Lyft may see similar strikes, as the Times reported there are plans for a 25-hour work stoppage. For now, the impacts would be limited, but any widespread walkouts would mean Uber and Lyft consumers in a major metropolitan area would see long wait times, galling would-be users right into the aforementioned public market debuts.
Putting a bit of spotlight on strategy, Nicole Moore, a part-time Uber driver tied to the strikers’ movement, was quoted by the Times on the issue of classification as independent contractors or employees. “There is no doubt that if we are employees, we have the right to be protected by national laws that provide a pathway to organizing and give us a right to a contract at the end of our fight,” adding that “drivers need gas in the car … so we can actually pay our rent and put food on the table for our family.”
The California moves would follow events in New York City, which has seen minimum wages put in place for contractors who work for both companies, and similar organized efforts (tied to Rideshare Drivers United in California) may come in Washington, D.C. and San Diego.