Uber’s stubborn insistence that it does not hire drivers is about to drop it further. A UK court has told the American Ride Visiting Company that it can no longer claim that rides in London are supported by a contract between client and driver. Uber should rather take responsibility for trips booked.
The Supreme Court ruling strengthens a previous Supreme Court ruling that Uber’s UK executives are workers, not independent contractors. Such local defeats, combined with global wage inflation, further weakened a business model that was shaky at first.
Uber represents a group of loss-making technology companies that gained notoriety in the 2010s. They acted as online intermediaries, bypassing heavily regulated competitors to enter new markets.
Billions of dollars in venture capital have helped Uber expand rapidly. Legislators and regulators are still catching up. The Supreme Court ruling that ruled that managers of the United Kingdom are workers began with claims made against the company five years ago.
Uber’s decision to seek clarity on a remark made in that ruling has led British judges to declare that it must enter into direct contracts with passenger passengers. As a transportation provider rather than an agent, it will be liable for value added tax on fares. A treasury consultation on VAT levies in the gig economy is already underway.
Because the decision only applies to transportation operators, technology companies that act as platforms in other sectors, such as the room booking provider Airbnb, will not be affected.
Uber already handles its 70,000 UK drivers as workers, with a minimum wage and pension benefits. But the latest changes are likely to repel its efforts to achieve sustainable profitability. In the last quarter, Uber reported a net loss of $ 2.4 billion.
Analysts are optimistic about setting an average share price target of $ 69. Uber has yet to prove that its core business of taxi rides and food delivery can be sustainably profitable. Shares are trading 14 percent below the $ 45 price they quoted in May 2019.
Quarterly adjusted ebitda became positive for the first time last quarter. But this figure has stripped down costs such as inventory-based compensation.
To achieve consistent profitability, Uber will need to either increase its prices or the percentage of customer charges it holds. For rides, the latter was 22.3 percent in the last quarter, down from 23.1 percent the previous year. The company, which is still recovering from the pandemic, will struggle to get one of them, even if managers find better deals elsewhere.
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