Opinion: Lyft IPO is being priced for perfection — and that’s not realistic

The first big IPO of 2019 is here. This year could set new IPO records (for size and lack of profits), and it all starts with Lyft (LYFT). The ride-hailing …

The first big IPO of 2019 is here. This year could set new IPO records (for size and lack of profits), and it all starts with Lyft (LYFT). The ride-hailing company is expected to trade within the next few weeks at a market cap between $20 billion and $25 billion.

At the midpoint of that proposed range, Lyft LYFT, +0.00% earns our Unattractive rating. It shares many of the same characteristics that have led us to warn investors away from other recent IPOs: growing losses, low barriers to entry, poor corporate governance, and an unrealistically high valuation. These factors make Lyft this week’s Danger Zone pick.

No network effect means no profits

The two things everyone knows about Lyft is that it is growing very fast and losing a lot of money. Bulls will argue that even if profits aren’t coming yet, Lyft’s growth puts it on the path to profitability. Their theory is that as Lyft grows the number of riders and drivers on its platform, it builds a network effect that increases its value and gives the company a competitive advantage over potential new entrants. A platform with more drivers has greater value to riders, and a platform with more riders has more value to drivers. Therefore, in theory, if the first movers attain a dominant share of riders and drivers, they build formidable barriers to entry for new entrants into the market.

Facebook FB, -0.09% is an excellent example of the power of network effects. People might not like Facebook’s privacy policies, but they join and stay on the social network because that’s where all their friends are. What’s the use in posting pictures for no one to see? Accordingly, the more people on Facebook, the more valuable Facebook is to its users. The more users on Facebook, the more money the company can make advertising to them.

As Facebook makes tons of money in advertising, it offers new features to attract and retain new users. That virtuous cycle goes on while new entrants have to suffer losses as they attempt to reach the critical mass of users needed to become profitable and, hopefully, to Facebook. The power of Facebook’s network allows it to keep growing and maintain a dominant position over competitors like Twitter TWTR, +0.94% and Snap SNAP, -0.80%

There are two key reasons why Lyft won’t benefit from a Facebook-like network effect:

Low switching costs: It is easy for both drivers and riders to use multiple ride-hailing apps. Roughly 70% of drivers work for both Uber and Lyft, and smaller services such as Juno have piggybacked off that network. The only switching cost involved for users of these platforms is the time it takes to close one app and open another. Switching cost are inconsequential for drivers too, especially for new ride-hailing apps that can use driver ratings from Lyft and Uber as a lower-cost way to screen drivers.

No scale effects: The bulk of Lyft and Uber use comes within a single city. Lyft states in its S-1 that 52% of its riders use Lyft to commute to work. The localized nature of the ride-hailing industry means that competitors can make inroads by focusing on a single city. If a startup can attract enough riders and drivers in a single city, it doesn’t matter if Lyft has a superior network nationwide.

These two factors will make it difficult for Lyft to build a network effect that gives it a sustainable competitive advantage or the ability to make money.

Growing losses reflect no network effect

The scale of Lyft’s losses is staggering, even accounting for the structural problems it faces. The company’s net operating profit after tax (NOPAT) was a loss of $953 million in 2018, a 38% increase from its $691 million loss in 2017. No IPO in recent history can match those losses. The closest, Snap, lost $498 million the year before its IPO, or roughly half that of Lyft.

Lyft revenue and NOPAT moving in opposite direction

Sources: New Constructs and company filings

Figure 1 shows that Lyft grew revenue by 104% in 2018, but made no progress on its path to profitability.

Investors should be skeptical of Lyft’s reported market share

Early in its S-1, on page 2, Lyft claims it has a 39% share of the U.S. ride-hailing market, up from 22% in 2016. Several news outlets have treated that number as fact, but there are three reasons why investors should be extremely skeptical of Lyft’s self-reported market-share number:

1. Conflicted source: The results come from Rakuten Intelligence, which is also a major investor in Lyft. Rakuten has a financial interest in making Lyft look better ahead of its IPO.

2. Incomplete: The 39% only accounts for Lyft and Uber. It ignores smaller companies, such as Juno, that have a non-negligible share of the market in certain cities.

3. Cherry-picked time frame: The data only covers the month of December. With people traveling or going to holiday parties in December, ride-hailing usage for that month is probably not representative of the rest of the year. In addition, choosing a shorter time frame allows Lyft to boost its self-reported number by offering steep discounts and incentives in December.

A more reliable market share analysis comes from data company Second Measure, which puts Lyft at a 29% share of the U.S. market compared to 69% for Uber and 3% for all others. Second Measure’s data put Lyft at just over 15% market share in 2016. Lyft is gaining market share as it claims, but at a slower rate than its self-reported numbers suggest. In addition, Second Measure’s data suggests that the bulk of Lyft’s gains came in 2017 during the #deleteuber campaign. Meanwhile, the company’s market share in 2018 only improved by 3 percentage points year-over-year.

Lyft wants investors to believe that it is on pace to achieve market share parity with Uber in the near future, but third-party data suggests it’s still a distant second.

Low barriers to entry

Even if we could trust Lyft’s market-share number, the question becomes “so what?” If Lyft is able to capture a large portion of the ride-hailing market by operating at a loss, the only way investors can profit is by selling to greater fools. Ultimately, the company needs to be able to raise its prices, lower costs, shrink the cut of proceeds it gives to drivers, or all three to generate sustainable profits.

However, if either Lyft or Uber attempt this strategy, they only make it easier for new entrants to siphon away riders and drivers. If anything, Lyft and Uber have paved the way for new fast-follower competitors by establishing the ride-share market. For example, Juno has quickly established a decent foothold in New York City in part by piggybacking on Uber and Lyft’s vetting of drivers, i.e., only accepting those which receive a suitable rating, and thereby lowering its employee (driver) acquisition costs.

Further, start up costs for the single-city focused firms, like Juno or Bubbl, are already quite low. If Lyft and Uber raise prices, new entrants will also enjoy higher revenue and even lower startup costs. Consequently, we think Uber and Lyft can expect an onslaught of competition in every major city when they can no longer afford to burn millions of dollars a year and must operate as a going concern.

Raising money is not a sustainable competitive advantage

The only competitive advantage that Lyft can claim at the moment is the ability to raise capital. With $4.9 billion in capital raised prior to its IPO and $2 billion of cash on its balance sheet, Lyft can afford to operate at a loss for longer than potential competitors. Lyft and Uber presumably believe that their cash piles and ability to raise future capital will scare off smaller competitors and allow them to establish a sustainable duopoly in the U.S.

Even in a duopoly, Lyft is at a significant disadvantage to Uber, which has raised over $24 billion. In addition, Lyft and Uber also face potential competition from well-funded international companies like Didi, as well as larger companies that may attempt to break into the ride-hailing market, especially companies such as Alphabet’s GOOG, +1.48%GOOGL, +1.53% Waymo and General Motors GM, +0.00% that are developing self-driving technology.

Not even Lyft expects profits

Most companies with Lyft’s profile of rapid growth and high losses claim they are building their customer base through high sales and marketing spending, and when they reach a certain scale they can cut back on that spending to achieve profits. That answer is typically nonsense, but it’s especially unrealistic for Lyft. Even if the company cut its sales and marketing costs to zero, it would still have lost $149 million last year.

Lyft’s own accounting suggests that it doesn’t expect to earn profits anytime soon. For example, management assumes that it will not realize the benefit of its large deferred tax assets (perhaps the only benefit of large cash losses) when it discloses a full valuation allowance against those assets: From page 93:

“We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income in the United States.”

In accounting speak, Lyft is saying that its deferred tax assets are presently worthless because the company doesn’t expect to turn a profit in the foreseeable future.

Cutting out the drivers doesn’t solve the profit problem

Lyft talks a lot about the importance of drivers, but they clearly foresee a future where they can cut them out of the equation. Lyft spent $250 million (9% of invested capital) in 2018 to acquire the bike-share company Motivate, and they repeatedly use the term “Multimodal Platform” to describe themselves in their filing. Figure 2, taken directly from Lyft’s S-1, shows how the company conceives of its platform beyond the drivers.

Lyft’s efforts to eliminate drivers

Sources: New Constructs and company filings

Lyft claims bike, scooters, and even public transportation as a part of its platform, but the most critical part of Figure 2 is autonomous vehicles in the far right corner. Self-driving cars are often presented as the silver bullet that will turn ride-hailing platforms into profitable enterprises.

At first glance, this theory makes sense. Currently, drivers claim about 71 cents for every dollar spent on Lyft’s platform. (Lyft does not count the driver’s cut of each fare as part of revenue. Instead, it discloses the total amount of money spent on its platform as “bookings”. In 2018, Lyft reported $8.1 billion in bookings and $2.2 billion in revenue.) If all that money went to Lyft instead, it would earn substantial profits.

However, this overly simplistic model doesn’t translate into reality. Self-driving cars would cut out the need for drivers, but they would add new costs for maintenance, R&D and insurance as well as much higher initial capital requirements. Further, Lyft remains vulnerable to competition pushing down prices and margins unless it develops proprietary technology with which no one else can compete.

Lyft seems to recognize that it’s unlikely to be a leader in self-driving tech due to disadvantages in resources and scale compared to Uber, Waymo, and GM. Consequently, the company has focused on partnering with leaders through its Open Platform, which allows other companies to deploy their self-driving vehicles on Lyft’s platform.

This strategy reduces the costs to Lyft, but it also reduces the reward. If, for instance, Waymo develops self-driving technology at scale, it could simply license that technology to all ride-hailing companies and earn a significant cut of each ride. In effect, Waymo replaces the driver in this situation, while the ride-hailing companies remain as relatively undifferentiated middlemen.

Bull case doesn’t hold water

The most plausible bull case for Lyft at the proposed IPO valuation is that a company like GM (which is a major Lyft investor) builds self-driving tech and decides to acquire Lyft to monetize that technology. However, it’s hard to imagine that GM would pay $20 billion-$25 billion for Lyft, or any more than the approximately $3 billion Lyft spent to get where it is today.

Specifically, if Lyft has raised $5 billion in capital, and it still has about $2 billion in cash, then why wouldn’t GM, or any other potential acquirer, consider $3 billion as the maximum amount it would need to build out its own ride-hailing business? And, if it can build its own ride-hailing company for $3 billion, then why pay any more for Lyft stock?

We struggle to see how GM would justify paying $20 billion-25 billion for Lyft. After all, the ground that Lyft and Uber have plowed to build driver networks and get consumers on board with ride-hailing only makes replicating their success easier and cheaper.

We can’t discount the stupid money risk of a company overpaying for an acquisition, but it’s hard to build a sound fundamental case for anyone to acquire Lyft at its current valuation.

Hidden liabilities further raise the risk

Investors should be aware that Lyft’s reported valuation ignores significant hidden liabilities in the form of employee stock options and restricted stock units (RSUs). These hidden liabilities represent shares that are not included in the official share count but will eventually vest and dilute existing shareholders.

On page 36 of the footnotes (page 256 overall), Lyft discloses 13.8 million outstanding employee stock options with a reported intrinsic value of $609 million. However, the company’s valuation of these options is based on assuming the fair value of its stock is $47.37 a share. We don’t yet know Lyft’s official IPO price, but at the rumored valuation of $20 billion-$25 billion, its shares would be worth about $90/each, or roughly double the fair-value assumption. At the IPO share price, Lyft’s stock option liability is more like around $1.2 billion.

In addition, Lyft discloses that it currently has 46 million RSUs outstanding (around 19% of shares outstanding). Of this total, over half (24 million) were granted during the past year. As with the stock options, Lyft values these RSUs at $47.37 a share, giving them a reported intrinsic value of $2.2 billion. At the rumored IPO valuation, these RSUs would be worth over $4 billion.

Investors should be aware that these RSUs represent a significant deferred cost that will hit the income statement after Lyft completes its IPO. The company estimates that it has $1.3 billion in unrecognized compensation cost related to RSUs, but that number almost certainly understates the true amount. When Snap went public with a similar valuation and a similar number of RSUs (about 20% of outstanding shares), it recorded $2.6 billion in stock compensation expense in its first year as a public company.

Combined, Lyft’s stock options and RSUs represent over $5 billion in future dilution, or 20%-25% of the proposed market cap of the company. Investors who care about fundamentals should deduct this $5 billion out of their valuation models.

Valuation already assumes best-case scenario

Even before accounting for these hidden liabilities, it is quite difficult to create a plausible scenario for future cash flows that justifies the proposed IPO valuation. Below, we model three scenarios for Lyft’s future cash flows:

High competition scenario: Lyft is barely able to scrape out an economic profit as any price increase opens the door for new competitors. The company earns the same razor thin margins that airlines had prior to industry consolidation. If Lyft achieves 4% pretax margins and grows revenue by 25% compounded annually for 10 years (around $20 billion in year 10), it has a fair value of $1.6 billion today, over 90% downside from the proposed valuation. See the math behind this dynamic DCF scenario.

Duopoly scenario: Lyft and Uber are able to control the U.S. market and keep out competitors, perhaps through some form of regulatory capture. This allows them to set prices at a profitable level, although they still face constraints as regulated firms as to how high they can go. If we use the same revenue growth scenario and double pretax margins to 8% (more comparable to airlines after consolidation), Lyft has a fair value of $8.5 billion today, about 62% downside from the proposed valuation. See the math behind this dynamic DCF scenario.

Self-driving scenario: What would Lyft be worth to GM or another company that develops self-driving technology? In this scenario, we optimistically assume, for argument’s sake, that Lyft captures a significant amount of the value from self-driving technology. If we keep the same revenue growth and double Lyft’s margins again to 16% (closer to an online platform like eBay), then the firm is worth its $22.5 billion valuation. See the math behind this dynamic DCF scenario.

Figure 3 shows just how optimistic the growth in the self-driving scenario is compared to Lyft’s present cash flows.

Lyft’s present NOPAT vs. future NOPAT required to justify valuation

Sources: New Constructs and company filings

To say Lyft is priced for the best-case scenario is an understatement. A $22.50 billion valuation assumes the company either magically becomes highly profitable while maintaining its high growth rate for a long period time or convinces someone to buy it for far more than it would cost to replicate what it’s done.

Dual-class shares hurt IPO investors

In case IPO investors need another sign that this stock is a bad deal for them, they should review the voting rights (or lack thereof) of the IPO shares.

Lyft plans to list shares using the dual-class structure that has become the default for recent IPOs. The company’s founders will receive Class B shares that have 20 times the voting rights of the Class A shares sold to the public. We showed how the dual-class structure that prevents investors from holding executives accountable contributes to the dysfunction and falling share price at Snap.

Lyft’s S-1 currently does not specify what the ratio of Class B to Class A shares will be after the IPO. It may be that the founders will not have complete voting control over the company, but at the very least they will have a disproportionate influence that will make it difficult for the average investor to have a meaningful say on corporate governance.

This poor corporate governance, combined with the unrealistic valuation and total lack of expectation for future profits, suggests that Lyft has little interest in creating long-term value for investors. Instead, this IPO is a way for employees and early investors to cash out and leave people who buy the IPO holding the bag.

Critical details found in financial filings by our robo-analyst technology

As investors focus more on fundamental research, research automation technology is needed to analyze all the critical financial details in financial filings. Below are specifics on the adjustments we make based on robo-analyst findings in Lyft’s S-1:

Income statement: We made $92 million of adjustments, with a net effect of removing $42 million in non-operating income (2% of revenue). You can see all the adjustments made to Lyft’s income statement here.

Balance sheet: We made $776 million of adjustments to calculate invested capital with a net increase of $222 million. The most notable adjustment was $348 million in off-balance-sheet debt. This adjustment represented 15% of reported net assets. You can see all the adjustments made to LYFT’s balance sheet here.

Valuation: We made $1.5 billion of adjustments with a net effect of decreasing shareholder value by $1.5 billion. These adjustments represent 7% of Lyft’s proposed market cap.

David Trainer is the CEO of New Constructs, an independent equity research firm that uses machine learning and natural language processing to parse corporate filings and model economic earnings. Sam McBride and Kyle Guske II are investment analysts at New Constructs. They receive no compensation to write about any specific stock, style or theme. New Constructs doesn’t perform any investment-banking functions and doesn’t operate a trading desk. Follow them on Twitter @NewConstructs.

Series Of Major Tech IPO’s Could Make San Francisco House Prices Skyrocket

Six major tech companies plan to go public this year: Uber, Stripe, Airbnb, Lyft, Pinterest and Slack. All are based in San Francisco and all are valued …

SAN FRANCISCO (KPIX) — Bay Area residents concerned about home prices in the region being out of control should fasten their seat belts as a number of major SF tech IPO’s could send housing costs into the stratosphere.

Six major tech companies plan to go public this year: Uber, Stripe, Airbnb, Lyft, Pinterest and Slack. All are based in San Francisco and all are valued at more than $10 billion dollars each, with some holding much more value than that.

Those initial public offerings stand to make millionaires out of hundreds — possibly thousands — of employees and investors, almost overnight.

“Lot of people will get a lot of money. Looking for housing to buy, things to spend on, so the city gets more crowded and more expensive. You know, that’s usually what happens,” remarked San Francisco resident Jon Yin.

But it hasn’t happened like this before.

Ted Egan is the chief economist for the city of San Francisco. He remarked how he hass seen plenty of big tech giants go public, but not this many at one time.

“This is not a new process, but this could be bigger than anything we’ve seen before.” said Egan.

Uber, Stripe, Airbnb, Lyft, Pinterest, and Slack have all announced their intention to go public in 2019.

Combined, their top estimated value is about $185 billion dollars.

IPO Valuation Graphic

Once the companies hold their respective IPO’s, employees may receive a bigger paycheck, or the shares they may own could increase in value.

Such and influx of wealth to the market could mean life gets more expensive for the rest of San Francisco.

“A lot of the things that have gone up in value and have become more prominent in the city in past years. You’ll see even more of that,” said Egan.

In 2012, when Facebook went public, according to a Zillow study, median home prices rose more than $20,000 in neighborhoods with a high concentration of the social network’s employees.

If history repeats itself, the average cost of a San Francisco home could climb even higher than its current $1.13 million price tag.

“It’s getting more expensive and housing is super hard to build these days. So I just feel sorry for the people who don’t own their houses,” said Lin.

ALSO READ: Median 1-Bedroom Rent In San Francisco Soars To Nearly $3,700 A Month

But there is a silver lining beyond the obvious economic boon. The influx of wealth means fatter coffers for San Francisco’s budget.

.4 percent of whatever employees earn will come into the city’s coffers by way of a payroll tax. That’s money many locals hope will be spent on bridging the gap of income inequality for the folks who aren’t so IPO lucky.

“What you have is, the haves and the have nots. You’re looking at the end of one huge spectrum: up here, money, money, money. Down here, a huge population with no funds at all. It is going to be a challenge,” remarked SF resident Manuel Randie.

The operative word here is “if.” Most of these companies announced their plans last year when the market was high. As volatile as the market has been, it is hard to say exactly what will happen in the coming months.

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What Uber is paying to come to Ashland

As part of the ordinance both Uber, Lyft and if any other ride share company have to pay Ashland $5,000 a year. Kelly Madding the Ashland City …

ASHLAND, Ore– You can officially get picked up or dropped off in Ashland by Uber starting on March 21st.

Joshua Thompson was at a bar downtown Ashland. I asked him how he got to the bar. He said, “we had to drive ourselves because there’s no Uber or Lyft available in Ashland.”

The other major ride share company, Lyft has not applied to work in Ashland yet. I did send them an e-mail and ask when and if they would be applying. They sent me back a statement saying in part “we look forward to beginning operations in Ashland soon.”

As part of the ordinance both Uber, Lyft and if any other ride share company have to pay Ashland $5,000 a year.

Kelly Madding the Ashland City Administrator says, “we think the fee is appropriate.”

She says the $5,000 fee is a street user fee and says everyone pays to drive on the roads and transportation network companies don’t have to. Medford also has a fee in their ordinance, but its fee is $1,000 a year.

Madding says, “I heard that there are some cities that had fees that are less and have looked at our fee and thought well in terms of use of the road our goal isn’t to subsidize Uber and Lyft it’s actually for them to pay what it would cost for those added trips on our roads.”

Ride share drivers will also have to be registered with the designated company, be at least 21 years old, have a valid drivers license, proof of insurance and have registration.

For people like Joshua Thompson, “we have a designated driver her name is Kristain.” They don’t need to have their friend Kristain be the designated driver anymore.

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Uber to pay $20M settlement to drivers, which one expert sees as ‘mostly a win for Uber’

Uber will pay $20 million to its drivers in California and Massachusetts to settle a class-action lawsuit that raised the question of what responsibility the …

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March 13, 2019, 1:47 AM GMT / Updated March 13, 2019, 2:53 AM GMT
By Cyrus Farivar

Uber will pay $20 million to its drivers in California and Massachusetts to settle a class-action lawsuit that raised the question of what responsibility the company has to its workers.

Lawyers for Uber said in a court filing Tuesday that they had agreed to a settlement with thousands of drivers. U.S. District Judge Edward Chen is set to hear the two sides’ motion on the preliminary settlement on March 21 in his San Francisco courtroom. Ultimately he will decide whether the settlement can go forward.

While the deal won’t end the longstanding and thorny question of whether Uber’s drivers are employees or contractors, the settlement likely will resolve the lawsuit that has forcefully pushed this question into court.

Numerous gig-economy companies including Uber, Lyft, DoorDash and Instacart save millions of dollars annually by not classifying drivers and delivery people — the backbone of their workforce — as employees.

The companies do not pay health insurance, retirement, unemployment or other benefits that many traditional employees expect.Uber uses the phrase “driver-partners” to refer to most of its workers.

The lawsuit, O’Connor v. Uber, has been pending in federal court since it was brought in August 2013 and argued that thousands of drivers had been misclassified as contractors and were improperly denied business expense reimbursement.

The new settlement covers approximately 11,000 drivers in California and 2,600 in Massachusetts who will collectively receive the $20 million.

According to a Monday court filing, the “average net settlement share” will be $2,206 per driver after attorneys’ fees, more than five times what had been proposed three years ago.

“Under this settlement, we estimate these drivers will receive approximately 37 cents per mile for the miles they have driven for Uber (depending on the exact claim rate),” Shannon Liss-Riordan, the plaintiffs’ lead attorney, said in an email to NBC News on Tuesday.

“This is a substantial recovery, given that the IRS reimbursement rate has varied between 50 and 58 cents per mile.”

Drivers not covered by this deal who want to recover money will have to bring a private claim via arbitration, a private quasi-legal process that is criticized by labor groups for favoring corporations over individuals.

Noah Edwardsen, an Uber spokesperson, declined to respond to NBC News’ specific questions about the settlement.

“Uber has changed a lot since 2013,” the company said in a statement. “We have made the driver experience even better through improvements like in-app tipping, a redesigned driver app, an innovative injury protection insurance option, and new rewards programs like Uber Pro. We’re pleased to reach a settlement on this matter and we’ll continue working hard to improve the quality, security and dignity of independent work.”

The two sides nearly reached a settlement in 2016 that covered far more drivers. The case was eventually appealed to the 9th U.S. Circuit Court of Appeals in 2017, where it was finally sent back down to the lower district court.

Liss-Riordan said that the settlement was not the end of the legal battle over gig economy workers.

“This is not the end of the issue of driver classification,” Liss-Riordan said. “We are continuing to pursue many cases against gig-economy companies (and others) that are misclassifying their workers as independent contractors, in order to save on labor costs and shift the risks and expenses of operating a business to their low-wage workers.”

“Mostly a win for Uber”

Legal experts say that Uber’s impending initial public offering likely brought pressure to settle the case.

Uber and its largest rival, Lyft, are both set to go public later this year. In a filing with the Securities and Exchange Commission released earlier this month, Lyft stated that there may be more “regulatory scrutiny” on tech companies that have so many “independent contractors,” and that new laws may be “adverse to our business.”

According to Veena Dubal, a labor law professor at the University of California, Hastings in San Francisco, Uber is “incentivized to get out from under potentially impactful legal decisions.”

But, she observed, Uber has been successful in staving off what could have been more financial damage.

“Since the near-settlement three years ago, the class of drivers has been seriously undermined by higher courts,” Dubal said in an email.

The class has gone from 400,000 drivers to almost 14,000.

“The value of the settlement itself is really hard to assess,” Dubal said. “Of course, if the drivers won at trial, especially on the reimbursement expenses, they would have the potential to make much more.”

Michael LeRoy, a labor law professor at the University of Illinois, said that this was a relatively easy way for the company to end a lengthy lawsuit that could have dragged on for years. Plus, in the end, $20 million is a very small amount for a company reported to be worth about $120 billion.

“I rate this as mostly a win for Uber,” LeRoy said in an email. “The monetary settlement is a small fraction of their potential liability, and their business model of utilizing drivers as independent contractors remains intact.”

Cyrus Farivar

Cyrus Farivar is a reporter on the tech investigations unit of NBC News in San Francisco.

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$20 million settlement reached in Uber driver lawsuit

San Francisco (AFP). Uber has agreed to pay $20 million to settle a lawsuit accusing the ride-share service of classifying drivers as contractors to …

San Francisco (AFP)

Uber has agreed to pay $20 million to settle a lawsuit accusing the ride-share service of classifying drivers as contractors to avoid paying them minimum wage and providing benefits.

The settlement filed late Monday noted that parties involved in the six-year-old suit still have a “bona fide” dispute regarding whether any specific amount of wages are due to drivers.

The proposed deal requires the approval of a federal judge presiding over the case.

The case filed in August 2013 covers Uber drivers in California and Massachusetts who provided rides for passengers any time from then to February 28 of this year who were not bound by an arbitration clause.

An estimated 13,600 drivers were affected. Uber faces a slew of arbitration claims by drivers not represented by the class-action suit.

“Uber has changed a lot since 2013,” the San Francisco-based company said in a statement, noting it has added a driver rewards program as well as an option to let riders tip drivers.

“We’re pleased to reach a settlement on this matter and we’ll continue working hard to improve the quality, security and dignity of independent work.”

The settlement also called for Uber to make changes including no longer deactivating drivers’ accounts for accepting few rides and creating a formal appeals process for drivers dropped from the service.

The deal does not resolve the big question of whether “gig economy” workers such as Uber drivers are independent contractors or should be considered by law to be employees with rights regarding pay, gratuities and benefits.

The ridesharing behemoth set to launch a stock offering soon is aiming beyond sharing car rides to becoming the “Amazon of transportation” in a future where people share instead of owning vehicles.

Under Uber’s plans, commuters could ride an e-scooter to a transit station, take a train then grab an e-bike, ride share or e-scooter at the arrival station to complete a journey all done using an Uber smartphone app.

Uber is steering toward a keenly anticipated stock market debut that will follow an initial public offering of shares by US rival Lyft.

? 2019 AFP

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