Despite Impressive Q4 Results, Uber Keeps Facing Headwinds

Uber Technologies (NASDAQ:UBER) continues to face headwinds, which has weighed on its stock. Notably, the company’s fourth-quarter earnings results impressed investors. The company also provided an upbeat outlook for 2020. Uber stock fell 6.72% on Thursday, which marked its worst day so far in 2020.

The big decline in Uber stock happened as investors continue to shun stocks in general due to the coronavirus. The broad sell-off in stocks saw the blue-chip Dow Industrial Average fall by 3.58%. Meanwhile, the S&P 500 fell by 3.39%. The tech-weighted Nasdaq Composite fell 3.10%.

Uber stock falls due to a blow in France

Besides the broad stock market sell-off, Uber stock faced an unfavorable court ruling in France. On Wednesday, a top French court ruled in favor of a former driver who sought employee status.

Uber treats its drivers as independent contractors—a business model that allows it to avoid certain costs. For example, the company doesn’t have to cover medical insurance costs or offer paid holidays to its drivers. However, the company’s business model has been coming under attack lately.

The court ruling France comes as Uber grapples with a California labor law that could increase its operating costs. The new California labor law passed last year will make it harder for companies to classify their freelance workers, like drivers, as “independent contractors.”

The former French driver seeks compensation from Uber after the court win. In fact, the company warned that disputes with drivers could result in significant additional expenses. The company has listed driver status disputes as a “risk factor.” According to the company, the push to reclassify drivers as “employees” instead of “independent contractors” might force it to change its business model.

However, a major change in the business model would likely have a negative impact on Uber’s operations and financial condition, according to the company.

Uber already expects to incur up to $170 million in costs related to settlements regarding status reclassification.

The negative French ruling in the driver status dispute also adds to Uber’s headache in Europe. Last fall, the company lost its license to operate in London. Also, a German court banned its ride-hailing service in the country.

On Thursday, the sell-off slashed Uber stock’s YTD (year-to-date) gains to 8.3%. However, the company is ahead of Lyft (LYFT), which has fallen about 14% YTD.

Driver disputes threaten road to profitability

Last month, Uber reported its fourth-quarter financial results, which improved from a year ago and beat the consensus estimates. The company shortened the duration that it expects to become profitable. Now, the company expects to turn a profit in the fourth quarter of 2020. Previously, Uber expected to turn a profit in 2021 at the earliest. Soaring costs from settlements with drivers could impact Uber’s profit timeline.

So far, the stock has fallen 14% since the company reported its fourth-quarter earnings on February 6.