Lyft (NASDAQ:LYFT) stock was hit hard by the Covid-19 pandemic but is now trying to stage a recovery. This won’t be easy, however, as Lyft is facing not just one, but multiple lawsuits over alleged assaults.
This could put negative pressure on LYFT stock, and so could scrutiny from the Federal Trade Commission or FTC concerning possible gig-worker exploitation.
If Lyft’s investors counted on a spectacular post-pandemic comeback, they’re surely disappointed now. During the company’s most recently reported quarter, Lyft posted a GAAP-measured earnings loss of $377.2 million, which is substantially worse than the year-earlier quarter’s loss of $251.9 million.
It’s hard to even gauge Lyft’s value, as the company doesn’t have a price-to-earnings ratio on a trailing 12-month basis. Besides, there are other problems on the horizon. A government crackdown, combined with a spate of lawsuits, will make it awfully difficult to invest in Lyft with confidence.
What’s Happening with LYFT Stock?
LYFT stock has been a poor performer in 2022, to say the least. The shares started the year near the $45 level, only to decline to $14 and change recently.
There’s really not much value here, only persistent price deterioration. Again, Lyft isn’t a profitable business on a GAAP-measured basis. It really isn’t too shocking, then, that Bank of America analyst Michael McGovern slapped Lyft with an “underperform” rating as well as a not-particularly ambitious $14 price target.
On top of that, the company’s investors now have to worry about a government crackdown on some businesses that hire gig workers. The FTC pointed to a “power imbalance” in which some companies control their gig workers through algorithms.
Apparently, this leaves the workers “more exposed to harms from unfair, deceptive and anticompetitive practices and is likely to amplify such harms when they occur.”
Samuel Levine, director of the FTC’s Bureau of Consumer Protection, had some tough words for companies that may try to reclassify gig workers. “No matter how gig companies choose to classify them, gig workers are consumers entitled to protection under the laws we enforce,” Levine declared.
The FTC’s crackdown could create persistent problems for Lyft, which relies on drivers who are gig workers. Scrutiny from the FTC could potentially lead to fines imposed on Lyft and/or policies that require Lyft to pay its drivers more.
Legal Actions Could Cause Reputational Damage
Along with the government’s crackdown on businesses that hire gig workers, there’s another ongoing problem for Lyft. A report from TechCrunch provided details on 17 separate lawsuits against Lyft. These lawsuits involve drivers and passengers who claim that they were assaulted during Lyft rides. Plus, the lawsuits accuse Lyft of “failing to protect its users,” TechCrunch reports.
Lyft apparently disputed some of the claims, but the reputational damage has already been done. Just the TechCrunch report alone could be enough to dissuade some people from using Lyft.
This could also prove to be extremely costly for Lyft. Remember, we’re not talking about a single class-action lawsuit here. Lyft has to deal with 17 separate lawsuits filed in multiple U.S. states. It could take months or even years for these lawsuits to be resolved.
What You Can Do Now
Do you really want to invest in a company that’s dealing with reputational damage and potentially costly legal action? That’s a question that any prospective LYFT stock investor needs to consider carefully.
Then, there’s the FTC crackdown to worry about. Remember, Lyft’s problems are your problems if you choose to invest in the company. Therefore, it’s wise to stay on the sidelines if you were thinking about buying Lyft shares now.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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