No Lift Back to Past Prices By TipRanks

Investors may be shrugging off recent regulatory headwinds when it comes to Lyft (NASDAQ:) stock. Shares in the rideshare app operator initially dipped on news of an August 20 California state court decision that could mean an end to gig workers being classified as independent contractors in that U.S. state.

Yet, as more investors and analysts became bullish that the company, and its rivals such as Uber (NYSE:) seemed poised to win on appeal, shares began bounce back. The stock went from under $45 per share, to briefly back above $50 per share, before closing out the week ending August 27 at around $48.39 per share.

This market reaction makes sense, as the rideshare industry has so far been successful combating the backlash over its labor practices. Investors might be correct at believing regulatory risks are overblown. On the other hand, various factors at play could result in Lyft making more moves lower in the months ahead.

Between the U.S. labor crunch, its profitability challenges, and a rich valuation, there’s still more in play to send it lower than to send it higher from here. This author is bearish on the stock. (See Lyft Stock Analysis on TipRanks)

LYFT Stock and The Overturning of Proposition 22

The U.S. federal government has yet to put in place changes to how gig workers are classified. Instead, in recent years, the battle’s been playing out on the state level. U.S. states like California have attempted to change labor practices believed by critics to be unfair.

Back in 2019, California passed a bill known as AB5. This bill would have made it so that gig worker platforms would be required to classify workers as employees rather than as independent contractors.

A change in classification means higher labor costs. As employees rather than an contractors, gig platforms would have to adhere to employment law, and pay unemployment insurance taxes. Yet, well-connected and well-financed, the gig platform industry fought back and won. Its financial backing of Proposition 22 helped the proposition to be passed by voters in November 2020.

Prop 22 exempted app-based transportation and delivery companies, such as DoorDash (DASH), from the provisions of AB5. Yet last week’s court decision, mentioned above, overturned this exemption. Chances are, though, that nothing much is set to change, in practice. Why? The gig platform industry still has options to fight back.

Three Other Issues Still Weighing Down on Shares

Likely to appeal the decision, major gig platform operators may not be immediately under threat by this recent court decision. Yet that doesn’t guarantee LYFT stock will continue to trend higher. Three factors that have pushed it down from its 52-week high, of $68.28 per share, to today’s prices, could remain in effect.

First, the U.S. labor shortage. The COVID-19 “reopening” has helped to bring back demand for its platform. However, said reopening has also reduced…