Greater protections are on the way for European gig-economy workers, and Shore Capital Markets reckons this should be of concern for Deliveroo PLC (LSE:ROO)’s shareholders.
New EU legislation will introduce stringent criteria for classifying gig workers as employees, shifting the onus onto platforms like Deliveroo to disprove employee status.
This move is a step in the right direction for workers’ rights but is also expected to have far-reaching implications for companies operating in the gig economy, such as Deliveroo.
Shore Cap contended that this translates into potentially higher operational costs and a need to adapt quickly to these regulatory changes.
The directive also mandates greater transparency in the use of algorithms that allocate work, requiring human oversight for critical decisions such as suspending accounts.
Analysts at Shore Cap highlighted the potential impact on Deliveroo’s profitability, as the company may need to increase its headcount to comply with the new algorithmic requirements, adding pressure to its central cost synergies.
More crucially, the reclassification of platform riders to employees could lead to a significant increase in rider costs.
This, coupled with the directive's requirement for a more transparent algorithmic process, suggests a substantial step-up in operational costs for Deliveroo over the medium term.
Shore Capital’s analysis points to a 'sell' recommendation for Deliveroo's stock, though not purely because of the new legislation.
Analysts also pointed to concerns over the company's valuation, which is significantly higher than its European peers.
Deliveroo shares are currently swapping for 127.3p with a market capitalisation of £1.94 billion.