Analyst Note| Ali Mogharabi |
On Aug. 20, a California state Superior Court judge ruled in favor of a petition filed by a labor union and some drivers demanding that Proposition 22 be ruled unconstitutional. This decision will not affect the operations of the network firms we cover, including Uber, Lyft, and DoorDash, as Proposition 22, which defines these firms' workers as contractors, remains applicable while the ruling is appealed. While the outcome of the appeal is uncertain, we think the strong support for the ballot measure in the November 2020 election, along with the California Supreme Court’s refusal to hear the case earlier this year, could sway the outcome in favor of Proposition 22. We also expect the appeals process in California to be a lengthy one, which could favor the firms’ efforts to work with other states’ lawmakers or create similar but amended or customized ballot initiatives. We are maintaining our $69, $63, and $142 fair value estimates for Uber, Lyft, and DoorDash, respectively. We believe legal risks are more than priced into Uber and Lyft shares, both of which we view as attractive. DoorDash remains overvalued, in our opinion.