Favorable California Court Ruling for Uber, Lyft, DoorDash

We maintain our $68, $34, and $159 fair value estimates of Uber UBER, Lyft LYFT, and DoorDash DASH, respectively, after the California appeals court ruled in their favor by upholding Proposition 22, meaning drivers and couriers will remain classified as contractors under the state’s law.

The court decided that Proposition 22, for which California voters displayed strong support in the 2020 election, was neither illegal nor unconstitutional. As mentioned in our Aug. 23, 2021, note, we had assumed that the firms had a strong case to uphold the election results. However, the appeals court did decide that restrictions on the state’s legislators to amend the law must be removed.

This outcome does not affect our projections for the firms, but it does discount some of the regulatory risks that the firms have continued to battle. We believe the decision strengthens Proposition 22 as a precedent for either other states to follow or the firms to leverage when negotiating with those states.

This ruling can still be appealed to the California Supreme Court. However, that process can be a lengthy one, as it takes months for the California Supreme Court just to decide whether it wants to hear the case.

We do not expect the firms to contest part of the appeals court’s decision, which was to remove restrictions on lawmakers making changes to Proposition 22. We think such a ruling basically states that any amendments to the law do not have to go through the judiciary and can be carried out by legislators. For this reason, if California’s Service Employees International Union and some drivers and couriers who initially brought the suit against Proposition 22, decide to take it to the state’s Supreme Court, the chance of the Supreme Court hearing the case is low, and if the case is heard, we think it is more likely that the court will side with the firms.