Daily Brief: Uber’s Chances Of Profitability Might’ve Taken A Massive Dent

Daily Brief: Uber’s Chances Of Profitability Might’ve Taken A Massive Dent

about 3 years ago3 mins

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Uber lost a major UK Supreme Court ruling on Friday, which isn’t the sort of service the ride hailing giant’s grown accustomed to.

What does this mean?

Uber famously treats its drivers as freelancers, but this court ruling – which has been in the works for the last five years – means there’s no wiggle room any more: it’ll have to treat the 25 who brought the case as employees. See, Uber already dictates its drivers’ contract terms, remuneration, and ability to work, so the court figured it was only right they were given a regular salary, not to mention vacation time and sick pay.

Uber will now face a tribunal to decide how much it’ll have to pay those drivers. And given there are around 1,000 others with identical complaints, it’s likely that the floodgates holding back similar settlements will open – though, for now, the company doesn’t have to reclassify all its British drivers.

Why should I care?

For markets: The costs might outweigh future opportunities.

Uber’s food delivery platform has benefited from the pandemic, sure, but its ride-hailing business has suffered. Investors, for their part, might’ve hoped its earnings would get a boost when economies reopened and cautious customers opted for private Ubers over public transport. But between these newly elevated costs in the UK – Europe’s largest ride-hailing market – and looming problems in California, profit could be a long way away – which might be why Uber’s stock dropped on Friday.

Uber stock
Source: Google Finance

The bigger picture: This ruling is an issue for the entire gig economy.

The Uber case could also come back to bite other businesses reliant on gig economy workers. Take Deliveroo: the global food delivery service – whose biggest market is the UK – relies on freelancers to deliver its takeout, and it might face extra costs that could derail the profit it’s promised investors. Talk about bad timing: it’s reportedly planning an initial public offering before the end of March.

Keep reading for our next story...

Danone’s Earnings Matched Analysts’ Estimates

Danone image

Danone’s earnings met analysts’ estimates on Friday, after the world’s biggest yogurt maker did a good job of meeting the world’s bacterially fermented needs.

What does this mean?

Covid’s side effects go way beyond loss of smell and shortness of breath: lower birth rates and widespread lockdowns are high on the list too, and they’ve hit Danone’s baby food business and bottled water sales hard. That led to the company’s first annual sales drop in three decades, even as rivals Nestlé and Unilever managed to grow their sales last year.

Danone results

That might explain why there was a lot more talk about Danone’s turnaround plan than there was last quarter’s numbers at the earnings update. And that apparent willingness to make the necessary changes – along with the company’s promise to give more details on its “return to growth strategy” next month – seemed to do the trick: its stock initially surged after the announcement.

Why should I care?

For markets: Activist investors step in when things aren’t working.

Danone has been trying to offset slower growth in its dairy segment in the last few years by diversifying into fast-growing segments like probiotics and plant-based ingredients. But investors aren’t convinced the change has been happening quickly enough, and Danone’s share price has slipped to its lowest in seven years. So now, a growing number of activist shareholders have been putting pressure on the company for a complete overhaul – from changing its management to splitting up its businesses.

Danone shares have underperformed rivals

The bigger picture: It works wonders when firms focus on things that matter.

Nestlé’s investors have already been there and done that, putting the Swiss food giant under similar pressure back in 2017. Since then, it’s restructured almost a fifth of its businesses by selling off underperforming ones so it can focus on fast-growth areas. And the move seems to have paid off: Nestlé’s shares are up 25% in the last five years – outperforming Danone’s by 45%.

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