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Is The Gig Economy Over For These Stocks?

Chris Dier-Scalise
·4 min read

In many respects, 2020 and the array of unprecedented circumstances that have colored it have blown the doors open for gig-economy businesses. On-demand transportation, personal shoppers, food and grocery delivery and an array of other companies that cater to personal consumer needs through a workforce of contractors and part-timers.

In the grips of the pandemic, share prices in stocks like GrubHub, Inc. (NYSE: GRUB), Etsy Inc. (NASDAQ: ETSY) and Uber, Inc. (NYSE: UBER) has shown strength as traders anticipate a future in which workers and consumers become unbound from conventional work and retail spaces.

However, for as much as the pandemic has done in normalizing the likes of Door Dash and Postmats, other forces have emerged in the regulatory and economic spheres that also put the future of these enterprises and those like them into question.

Given the conflicting forces at play in the currently high-growth gig-economy field, traders should look to whatever tools they can to anticipate whatever shifts the market may bear. A free upcoming webinar from trading research platform VantagePoint will look at similar high-profile industries through the lens of its predictive A.I. software.

In anticipation of the virtual demonstration, let’s take a look at some of the forces at play for and against the gig-economy now and in the future.

Of Contractors And Employees

Because momentum is seemingly on the side of these gig enterprises at the moment, it is beneficial to examine the headwinds mounting against the nascent industry.

Currently, there is really just one foreseeable threat facing the industry, but it is a big one that only promises to grow and evolve in coming months. That threat is a recently passed California bill, Bill AB5, which requires these gig-economy companies like Uber and Lyft, Inc. (NASDAQ: LYFT) to designate their contract workers as employees.

In practice, this means these workers will be entitled to basic protections, most significantly they will be guaranteed minimum wage protection and unemployment insurance. And while California is not the first state to make this distinction — New York, Oregon and Alaska have each indicated the levels of control these companies exert over their workers cross the line into some form of employment — it is the first to enforce that distinction.

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And there is every indication that more states, including those mentioned above, will follow California’s lead. Couple this with a prevalent trend toward rising minimum wage levels in an array of states across the country and the low-cost workforce many gig companies rely on to keep overhead costs low may be in jeopardy.

This may in fact be why Lyft, among all of the companies listed previously, has seen the most downward pressure in its stock price. The ride-share company is the only stock in the red for 2020, and it is the one with the most direct exposure to its fleet of drivers-come-employees.

Labor (Dis)Unions

But Lyft’s troubles are not the gig economy’s, and many of the other tech-driven companies leveraging their decentralized workforces have attempted to anticipate or circumvent the problem of treating their laborforce like employees.

Uber, for instance, has managed to keep its equity in the black through 2020, albeit by a slim margin. While the company shares a great deal of overlap with Lyft, it has also attempted to diversify outside of purely ride-sharing in its acquisition of Postmates. And while that enterprise also shares the risk of tighter revenue margins due to Bill AB5 and its potential followers, Uber has also invested heavily in autonomous vehicle and logistics technology, something that may end up removing the worker/employee distinction entirely.

And that is likely why other technology-based workforce solutions have seen their stocks rise through 2020 despite the ill omen represented by AB5. Share price in online marketplace Etsy is at an all-time high thanks to a rash of new users enriching the platform as a whole.

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That marketplace structure has also helped stocks like Upwork Inc. (NASDAQ: UPWK) and Fiverr International Ltd (NYSE: FVRR), except instead of marketing handmade goods, their inventory is the growing array of independent workers now cut off from the typical 9 to 5, either by choice or by the unfortunate circumstances of 2020. In any case, these workers and the websites they are now compelled to market themselves on have arrived at a moment when the demand for quick and cheap labor is in vogue.

Putting The Future To Work

Of course, the natural extension of AB5 to other states, or even nationally,  could throw the future of contract work at large into question, which itself would hamper the seeming success of the likes of Upwork and Fiverr.

Add to that the question of how strong a consumer economy built on the back of cheap and dirty white-collar labor can be in the long-term and the gig economy model becomes even more hazy and uncertain than it currently is.

Hence the need among traders to anticipate the unexpected and draw educated inferences from wherever possible. While drivers, deliverypeople and office drones might be a dime-a-dozen, clever implementation of technology is worth its weight in stock brokers.

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