Lyft Shares Sell Off as Driver Strike Highlights Regulatory Risk

(Bloomberg) -- Lyft Inc. shares kicked off a crucial week for the company with a sharp drop in value amid news that drivers of ride-sharing services were planning a massive strike this week.

Shares of the company fell as much as 4.2 percent on Monday, with analysts saying the upcoming strike would serve to highlight the regulatory concerns associated with the ride-sharing business model. Lyft is also set to report its quarterly results on Tuesday, while Uber Technologies Inc.'s initial public offering is expected to price later this week.

“To me the planned driver strike is not a new occurrence as there appears to be somewhat of a ground swell of push back occurring as ride hailing goes from private hands to public ownership,” Northcoast Research analyst John Healy said in an email interview. “The driver strike does not specifically create new regulatory items but clearly pushes the concerns into the forefront.”

Lyft is one of the rare recent IPOs that's underperforming the market on Monday, as other recently listed companies including Beyond Meat Inc. and Pinterest Inc. shrugged off a broader trade-related market slump amid a hot IPO market.

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Regulatory risks surrounding how drivers are compensated and recognized by ride-hailing services like Lyft and Uber, are often seen by skeptics as one of the major challenges that these companies need to negotiate. While this week's strike might end up as a temporary road bump, analysts on balance expect these troubles to linger.

“I think this particular protest could be a temporary overhang for the shares but, stepping back, Lyft and Uber's relationships with their drivers more broadly is a critical issue for both companies,” D.A. Davidson & Co analyst Thomas White said, also by email. “Having a sufficient number of drivers on the platform at any one time is essential for maintaining adequate liquidity in Lyft and Uber's market places, because it is a key element of providing a good customer experience for riders,” the analyst added.

A ride-hailing company's relationship with its drivers may also become a differentiating factor in the group, which analysts have already flagged as one that lacks differentiation between different service providers.

“At the moment in North America, Lyft's brand is associated with being more socially responsible and treating their partners relatively better than say a Uber,” D.A. Davidson's White said. “Whether Lyft can differentiate its brand in this way vs Uber over the long-term will be interesting to watch.”

To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Scott Schnipper

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