ridesharing stocks

The TLC regulations passed by New York City have compelled the two ridesharing companies to refrain from hiring new drivers, according to Politico. It comes as a setback to both Uber who is on the IPO path and Lyft, which has just gone public.

On one hand, Uber had blocked the hiring of new drivers from the 1st of April; Lyft halted any new drivers from signing on April 15. According to the TLC regulations, the ridesharing company is obligated to pay drivers in the city $17.22 per hour after expenses have been paid. The new TLC regulation passed in New York City came into effect in February.

Uber and Lyft have confirmed that they have stopped hiring new drivers as a result of the new TLC regulation. The companies posted and confirmed the news on their websites. Uber said it wouldn’t hire new drivers in NYC “due in part to new TLC [Taxi and Limousine Commission] regulations.” Lyft went on saying, “Because of TLC regulations, we’re currently not accepting new drivers in New York City.”

The law came into effect with the intention of disciplining the ridesharing companies of having too many drivers on the roads and not carrying passengers. Having plenty of drivers, though is an asset for these ridesharing companies as it gives the rider ample availability. It also delimits the wages of the drivers. In addition to this, it leads to congestion of traffic. Moreover, it creates an unfair advantage over taxi services that are more regulated.

This Could Be Alarming To The Companies Doing IPOs In The Space

The news serves as an alarm to the investors who find scope in these ridesharing companies. Moreover, it sets as an example that a similar law could come into being in other cities as well. The objective behind the law was to provide decent wages to the drivers and it appears that much has been achieved.

The lesser the number of drivers on the road the more the wages that the current drivers would earn. In fact, Politico reported that an NYC presentation this month showed that drivers had earned $56 million more than they would have without the regulation.

The law serves as a impending risk to both companies. Before going public, Lyft discussed the limitations that now hold the company to “a wide range of laws and regulations, many of which are evolving, and failure to comply with such laws and regulations could harm our business, financial condition, and results of operation.”

Lyft also said in its S-1 filing that “Our business depends largely on our ability to cost-effectively attract new riders and increase utilization of our platform by our existing riders.” And Uber said in an SEC filing that “Our success in a given geographic market significantly depends on our ability to maintain or increase our network scale and liquidity in that geographic market by attracting drivers.”

With the constant apprehensions of both the companies in dealing with the regulatory changes, it is extremely difficult to understand how effective these ridesharing companies can become. However, it becomes candid for the investors to keep a close eye on how the companies respond to these regulations and whether other cities follow New York’s lead.

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