Gig worker labor law: 'Uber is better positioned than Lyft as most would think,' analyst says

CFRA Research Senior Equity Analyst Angelo Zino joins Yahoo Finance Live to discuss President Biden's proposed labor laws protecting gig workers and how that would impact ride-share giants Uber and Lyft.

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SEANA SMITH: Doordash, Lyft, Uber all taking a massive hit today on a new proposal that could shake up the gig economy. The plan from the Labor Department would make it harder for companies to classify workers as independent contractors. We want to bring in Angelo Zeno, CFRA Research senior equity analyst. Angelo, it's great to see you. Ahead of this announcement, you had a buy rating on Uber, a buy rating on Lyft. What other implications do you think if, in fact, we do see this rule go into effect?

ANGELO ZINO: Yeah, I mean, listen, I think this is right now just kind of a proposal that's out there. I mean, from my understanding, if this goes into effect, it essentially just reverts the standards to the Obama administration era and doesn't kind of fully result in a full reclassification of drivers. So that being said, clearly, it would probably have some implications on the margin profile of these companies to the downside.

But our view was, clearly, there are different factors at stake here when looking at each one of these individual companies. And they do have flexibility to do other things in terms of pulling levers on the pricing side of things to offset potentially higher costs out there, which you would expect to take place if this were to go into effect. So that being said, I think the outlook is very mixed at this point in time. We do think Uber better positioned than Lyft, as most would think, if this were to go into effect.

RACHELLE AKUFFO: Now, Uber's stock has already been under pressure, down 41% year to date. But what would you need to hear from the companies that would instill a bit more confidence if this proposal does, in fact, go through?

ANGELO ZINO: Yeah, I mean, listen, I think first and foremost, we have to kind of see exactly what kind of some of the details are here because at the end of the day here, when we think about how this is going to be looked at, most of these-- we believe most drivers out there continue to prefer the flexibility and utilize these platforms as a secondary source of income.

So even if this rule were to go into effect, the vast majority of these drivers would probably not be impacted, and the actual cost profile probably wouldn't be that impacted. I think the bigger concern out there is just do we potentially see a full reclassification of the gig economy over time. That's clearly the bear case scenario, I think, in the broader space in general.

But as far as I'm concerned here, you know, I think what we've heard just from both Uber and Lyft today is a minor positive. And we have seen Uber kind of have to navigate a change in classification out in London. And they've actually been able to kind of do it very successfully.

DAVE BRIGGS: Yeah, blog post from Lyft says no immediate or direct impact on Lyft business at this time, noting a 45-day public comment period. And this does not, does not reclassify Lyft drivers as employees. This would be from bad to worse because Uber is already down 43% year to date and Lyft 74% year to date. But you said, Angelo, Uber is better positioned to survive this if, in fact, it goes into place. Presumably, they have a lot more drivers. Why are they better suited to handle a rule like this?

ANGELO ZINO: Yeah, I mean, listen, the number of factors, first and foremost, they've already kind of inflected. And we think they've now got a business model that's sustainably free cash flow positive. But just the scalability of this company, you know, where the market share they've got within their markets, and just the size of this company allows them to kind of navigate higher costs and better than Lyft out there. They're also more geographically diversified, right?

So an impact within the US market probably wouldn't have as much of an impact for them as that for Lyft, which is almost entirely US-based. But, you know, clearly, I mean, these are both companies that have been significantly impacted here over the last 12 months from what we've seen in the broader stock market and definitely concerns about the macro factors as well, as we kind of look ahead into 2023 and what they could potentially have-- how it could potentially impact the business, as you kind of look at these in conjunction with these potential initiatives on the political side of things.