(Bloomberg) -- Uber Technologies Inc. is raising the price for some of its rides in an effort to incentivize drivers to pick up fares where competition from Lyft Inc. is particularly strong, according to Needham & Co. analyst Brad Erickson.
The company’s already higher minimum fare rate in most of the cities with Lyft is a “key tool for keeping drivers engaged in the densest markets,” the analyst wrote in a note to clients. The issue of driver recognition and related compensation has been a critical concern for investors at both companies.
“We think the market mis-perceives what Uber’s efforts around driver incentives really aim to accomplish over the longer term,” Erickson said. Bearish arguments seem to center around increased competition and a lack of demand, forcing the company to incentivize its driver supply. However, the analyst argues mobility services are still competing against a formidable adversary, which is more than 100 years of car ownership. “This makes excess driver supply critically important in compelling the initial behavior change for would-be drivers.”
Drivers have always been an important, as well as a contentious component of the ride-hailing business model. Legislation concerning “worker status” such as a recent California Assembly bill has the potential to be a long-term threat to Uber and Lyft’s businesses as well, Wedbush analyst Daniel Ives said.
The California Senate Labor Committee passed the so-called AB-5 bill on Wednesday, sending it to California Senate Appropriations Committee. The bill could make it tougher for companies to label workers as independent contractors rather than employees. However, BofA analyst Justin Post noted that surveys show 70% of drivers prefer the flexibility of an independent contractor status and working multiple gigs simultaneously.
Uber and Lyft both made their trading debut earlier this year amid palpable investor excitement. However, the stocks have not been able to live up to the hype. Uber shares remain 3.1% below its IPO price set in May, while Lyft’s stock is down nearly 15% since the March IPO.
(Adds share moves in paragraph six.)
To contact the reporter on this story: Esha Dey in New York at email@example.com
To contact the editor responsible for this story: Brad Olesen at firstname.lastname@example.org
For more articles like this, please visit us at bloomberg.com
©2019 Bloomberg L.P.