UBER - Why Is UBER Stock Down 8% Today?
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Among today’s relatively broad move higher across most indices, certain stocks are not participating in this upside. Among today’s biggest losers is ride hailing company Uber (NYSE:UBER), down more than 8% at the time of writing. Investors appear to be pricing some potentially bearish news into UBER stock coming out of President Joe Biden’s Labor Department.
Biden’s proposal seeks to make it possible to reclassify gig economy workers from independent contractors to employees. The goal of this legislation is simple. The administration wants companies to pay health care benefits and provide the same protections employees would receive for those who spend the vast majority of their time working for one particular company.
Companies such as Uber, which broadly rely on an independent contractor model, are being hit by this news. Investors are pricing in higher employee costs, which could filter down into the company’s margins and profitability long-term.
Let’s dive into what these proposed changes could mean as they stand right now.
Why Is UBER Stock Plunging Today?
It’s clear these proposed rule changes, taken to the extreme, could really hit Uber and its peers hard. Companies employing independent contractor models have, for a long time, escaped the costs associated with providing health care benefits and other protections employees receive. These are costly, and could certainly provide headwinds for companies like Uber which are struggling with providing higher profitability.
That said, it’s also true Uber has touted its model as better for everyone. Providing flexible hours and the relative freedom that comes along with being a contractor is a net benefit to the individual, the company has argued. Additionally, previous legislation that was in place under former President Barack Obama’s administration did not require Uber to change its worker classification. Thus, perhaps today’s announcement is a “no news” event for UBER stock.
Time will tell. For now, investors appear to be equating any reason to be cautious as a reason to sell. For UBER stock, this could mean more downside volatility as investors flee for safety.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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