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Why Lyft Stock Climbed 10.4% in January

By Keith Noonan – Feb 4, 2020 at 11:01AM

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Concerns about California's AB 5 law appeared to lessen last month.

What happened

Shares of Lyft (LYFT -1.67%) rose 10.4% in January, according to data from S&P Global Market Intelligence. The ride-sharing stock climbed early in the month thanks to potential workarounds and legal challenges to California's Assembly Bill 5 (AB5).

LYFT Chart

Lyft data by YCharts

California's Assembly Bill 5 significantly limits the ability of companies to hire laborers on a contract or freelance (as opposed to employee) basis in the state. Legislation like AB5 presents a significant threat to companies including Lyft, Uber, and a wide range of businesses and industries that depend on "gig economy" labor. The law went into effect in California last month, but Lyft stock posted gains as investors seemed to focus on ways that its impact could be mitigated. 

A person behind a steering wheel using a mobile phone.

Image source: Getty Images.

So what

California's AB5 law took effect on Jan. 1, and companies and workers who depend on the gig economy are still trying to find workarounds and legal remedies to avoid being affected by the law. Uber changed its policies for drivers on Jan. 8, and the ride-sharing company filed a lawsuit along with food-delivery company Postmates to challenge AB 5 late last December. A Los Angeles County Superior Court judge ruled on Jan. 9 that AB5 does not apply to independent truck drivers in the state.

With movement on the legal front and signs of potential workarounds to reduce the impact of the law, investors seem to have become more confident in Lyft stock last month. 

Now what

Lyft is scheduled to report its fourth-quarter results after the market closes on Feb. 11. The company is guiding for sales in the period to come in between $975 million and $985 million -- good for growth of 46.5% year over year, at the midpoint of the target. The company projects non-GAAP (adjusted) EBITDA loss at between $160 million and $170 million.

For the full year, Lyft expects revenue between $3.57 billion and $3.58 billion, representing annual growth of roughly 66%. The company expects adjusted EBITDA loss between $708 million and $718 million. 

Lyft is valued at roughly four times its expected sales for the 2019 fiscal year and 3.1 times next year's expected sales.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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