Uber Technologies Inc. has spent and fought to prevent its drivers from becoming employees rather than entrepreneurs, and investors finally got a glimpse of the financial reasons on Wednesday.
broke $ 600 million of its total revenue of $ 3.5 billion to account for “the resolution of historic UK driver classification complaints” in its first quarter results. This is the direct result of a UK Supreme Court ruling in March that led Uber to classify tens of thousands of drivers in the UK as employees.
That puts a dollar figure on a long-standing concern about Uber and other “work-on-demand” companies – what it would look like financially if they were to treat drivers like employees. And there’s nothing to sneeze at, blowing the $ 200 million spent by Uber and other concert companies to pass a new law in California in their quest for a “third way” for labor rights. . That victory could be moot, however, as President Joe Biden’s new Labor Department secretary said last week that drivers should enjoy the benefits of the job in most cases, scaring some investors.
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Uber shares initially rose after hours on Wednesday, after the company recorded the “run-up” and continuing losses with the $ 1.6 billion sale of its autonomous driving unit, but fell back to a 4.8% drop during extended session as executives. discussed the increased costs for drivers and was faced with an immediate question over comments from Labor Secretary Marty Walsh.
“When we look at the makeup of the current administration, it’s fair to say that some people have differing views on these issues. They are not all the same in their outlook. And we think it creates space for meaningful dialogue, ”said Tony West, chief legal officer for Uber, who worked in the Department of Justice under President Barack Obama.
The company’s standard mantra, when asked about the possible costs of classifying its drivers as employees, has been to say that they will pass the costs on to its users, which executives reiterated on the call. Wednesday. They noted that they had seen a slight increase in costs during the quarter, due to the benefits to drivers, and that they were able to pass those costs on to passengers, without impacting demand.
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“We are looking, with investments to support recovery and growth mobility initiatives and delivery,” said Nelson Chai, chief financial officer of Uber, noting that the rideshare company plans to invest in its driver base and increase its general expenses, marketing and administration costs, as well as R&D. Chai has estimated that Uber will spend between $ 450 million and $ 480 million in the second quarter, following lower spending in the last quarter. Marketing spending will also be included to attract new drivers, as it faces driver shortages in the United States and Mexico.
At the same time, Chai noted that the company continues to face “significant uncertainty in forecasting and predicting publications reopening consumer behavior.”
Wedbush Securities analyst Dan Ives said investors were unhappy with the spending spike and pointed out that the UK charge / regularization highlights the burning issue of possible additional classification regulation of its engines.
“A higher level of short-term investing, coupled with some uncertainty around the forecast,” was affecting stocks in after-hours trading, Ives said in an email. “It was a robust impression, but after Biden’s move against concert players, the street is very nervous around Uber and Lyft, with post-quarter selling a common theme during tech earnings season.”
Even so, investors now have an idea of what it might cost to classify drivers as employees of the company. As the debate over construction workers continues, investors will likely remain nervous about the issue. The nagging question is first and foremost whether companies like Uber and Lyft Inc. LYFT,
ever be profitable, with their subcontractor business models again threatened and subject to significant and unforeseen costs?