Uber has defined itself as: “The Amazon of Transportation”; “Uber is a new way of working”; Uber “Partners”; “Ridesharing”. These are all patently false statements. As an example, there are only two companies in the history of the world (as far as I know and have researched) that achieved a market capitalization – public or private – of 50 billion dollars or more that were not profitable in their first five years of existence. They are Tesla and Uber. I predict they both could face financial stress in the next five years. I won’t take a lot of time dissecting all these concepts. However, Amazon owns a lot of cloud devices and storage, fulfillment centers, an entertainment delivery system, an original content producer, Whole Foods. Uber, on the other hand, owns no cars, nor significant real estate, and leases most of its patents (none of which are for “ridesharing” as a proprietary ownership of the term). Its drivers are free agents, free to work also with Lyft or Juno simultaneously as independent contractors. There is no loyalty test here. They will migrate to the highest payout. They are arguably the principal asset of the company and have no ownership in its future as “partners”, with no bonus system in place for superior work or service.

The Prospectus

As all of us who have worked as underwriters of corporate public offerings are well aware that prospectuses are documents full of warts. They have standard warnings like “if people decide to never eat hamburgers again due to dietary changes in society or the extinction of the cow, there can be no assurance of our success” (a McDonald’s like competitor’s lament in a prospectus). They tell about all the cataclysmic events that can knock this new wonderful enterprise off track, regardless of its merit, quality, great people, etc.

However, the Uber prospectus reaches new heights of candor and actually tells the truth about the current status of the company and its future prospects. What did the underwriters do? Did they waterboard Mr. Khosrowshahi?

The prospectus states that should the courts decide that the Independent Contractor Driver Designation violates the “control and direction” aspects of what makes one an employee, then Uber might have to seriously rethink how to survive and what to do as a different kind of company. All that workman’s comp and FICA stuff and minimum wage will kill the business model. I would rate the chance of this happening at about 60-40 in favor of employees.

The prospectus states that “If our culture does not improve enough we may not be successful”. This comes after Eric Holder came in to right the ship of sexual harassment epidemics and Tony West came over from Pepsico to make a difference as corporate counsel. Uber has, at my best count, around one thousand outstanding lawsuits, ranging from the aforementioned sexual harassment to rapes, to class actions of IC’s claiming employee status, to misrepresentation, to not paying everybody what they are owed. They brought Bozoma Saint John over from Apple a couple of years ago as their branding Guru. However, by then all of the significant co-branding opportunities using the name “Uber” (their number one marketing asset in my opinion) had vanished in the haze of distaste, misbehavior, misogyny, false advertising, poor (if any) background checks, many rapes, a few killings. Ms. Saint John did virtually no deals and left quietly after a year, stating in interviews that the state of the corporate culture was the primary reason she was leaving. She was surprised about how bad it was and wondered if it could ever be repaired.

The Prospectus says that Uber may never make money; they lost around two billion last year. This is sort of funny. It is an out of place declaration which would be odd in its own right. But, if an investor is being urged to buy the new stock what would be the motivation to own a piece of a company that will never make money?

Of course, the Prospectus does not include the Uber sexual transparency report, a result of the Holder consult, which is due out shortly, probably fifteen minutes after the IPO debuts in the trading arena. This is a pretty big looming cloud!

The Numbers

There are: 150 patents (they own few – many are Bell Lab authored – and they don’t give anything of value away); 1000 lawsuits; continuing losses; 22 billion in cash raised with 5 billion at best in the bank now; 4000 IT employees in San Francisco at an average annual salary of 200k; a billion a year in salaries (of course the IC drivers excluded for now); 1.8 billion in 2018 losses; less good will than before. The latest “rideshare” market pie is Uber at 69.2 %, Lyft at 28.4. Uber is down three points; Lyft is up three. Annual growth has dropped from 95% three years ago to 38%.

So, we have a company losing an increasing amount of money on more gross receipts – forever reinforcing the economic law that you can’t make up losses on volume. In other words, if you lose money on each ride maybe the plan is not going to work.

So you go into every corollary business you can: bikes, flying or not; driverless cars (where there are at least twenty substantive competitors); parcel delivery; trucking; and the area where they place the most emphasis in the Prospectus – Uber Eats. I could tell a few hysterical stories I have heard interviewing Uber drivers about delivering food, but that for another day. There are, by my conservative count, 16 door to door food delivery companies. It’s a very crowded space even if the demand is there. And, of course, as noted in the prospectus, their competitors in the various categories are Apple, Amazon and Google.

Ironically, Uber in its zest to protect customers privacy as a calling card for its service has promised in its TOS (Terms of Service) not to sell away customer’s habits and journeys and proclivities as third party vendors. This data is probably worth a whole lot were it monetizable. They also, in my opinion, have missed the boat on two areas where I believe they could immediately increase subscribers, increase loyalty, and increase repetitive revenue. I am amazed they have not done either of these. (If they would like to hire me as a consultant I will share.)

Social Value

Social Value is what Stockholders, Stakeholders and Corporate leaders do to enhance our world. Heinz has a micronutrient program for the poor. Adidas has a shoe for Bangladesh program to put shoes on the poor. IBM is working with emerging economies to address traffic conditions in crowded cities. Verizon has a device for the disabled program that is longstanding and acclaimed. Greyston Bakery hires the chronically unemployed and provides low cost housing for them as well.

Yes, Uber drives home a few drunks every night. (However, one could counter argue that this actually encourages more public drunkenness?) Perhaps because the Uber name has been so damaged by the news of rapes, kidnappings, false backgrounds and criminal backgrounds, an angry CEO (Travis Kalanick), a grossly unequal corporate sexual and sexist culture – perhaps the cuteness of “I am in an Uber” is gone forever. Bozoma Saint John thought so!

Uber expresses disdain for its drivers in fighting the benefits for drivers that employment status would provide, like healthcare and retirement plans and protection on the job. It should be noted that driving a Taxi or hired car is statistically the third most dangerous occupation out there. Uber has discontinued its yearly vehicle inspections program and expanded its acceptable age-of-car standard from ten years to thirteen and more in some locales.

Concentric Circles of Value

Boeing has had its troubles of late. Nonetheless, it will still be making planes, at a sizable profit, as long as there are planes. Its market cap is 199 billion. Uber is pricing its offering at around a 105 billion market cap. We are looking at a valuation of the money-losing Uber that is fully half that of the hugely profitable Boeing. Not for me – or you.

How do these other successful profitable enterprises stack up against the Uber stock valuation?

  • 3M
  • Honeywell
  • Nike
  • Siemens
  • Union Pacific
  • UPS
  • Amgen
  • Abbott Labs
  • Bayer

You guessed it. These are all market capped at about the $100 billion dollars Uber says it is worth. This is not even vaguely absurd but totally absurd.

Of course, the old argument is the new kid on the block has more growth. We have already noted that Uber’s market share is decreasing; its revenue growth is slowing dramatically; its losses are at best continuous. Basically, there has never been a national taxi company of note because of the challenges of differing demographics in our very diverse country. Indianapolis is not like Los Angeles. New York and Nashville present different densities, socio-economic circumstances, and availability of competing public transportation alternatives. The livery business in our country that still loves its cars is not like the I-phone business. It is a boutique industry where most of the profit was made on monopolies, taxi medallions and deep pockets.

The US company with the greatest number of Limo category vehicles is Davel out of Boston. It does 250 million dollars in annual revenue. The fact that Uber is in 70 countries and Lyft only in North America makes Lyft less risky to me based on my belief that they operate in very different climates – politically, socially, geographically, and economically. Uber has blown a lot of that 20 billion in capital trying to own the world, “rideshare” wise. In fact, the two most fertile countries for Uber’s business model would be India and China. In both countries Uber lost a tremendous amount of money. It sold out in China to Didi and partnered in India with Ola.

Am I advocating Lyft? No, luckily if you avoided getting involved in the Lyft IPO (which has discounted forty percent from its opening bid a few weeks ago), you can look at it as a trial balloon harbinger of the doom of the much bigger Uber offering. Lyft is only in North America so they will lose less I presume. Their IPO was a clever deal – only ten percent of the total outstanding was offered to the public. Even that “tightness” could not save it. The shorts are having a field day!

Here’s the bottom line, the “rub”. The Uber IPO appears designed primarily to get the Venture Capital people out. It is about Benchmark Capital, not about benchmarks toward success and profitability. It is about Underwriters who will sell anything if they can. I believe the Lyft offering was so disingenuous and poorly supported by the underwriters that there will be major class action lawsuits coming.

I am a big fan of Occam’s Razor – basically that simpler solutions are more likely correct than complex ones. Two years ago, after four months on the job as President of Uber – after rescuing Target post credit card hacking crisis – Jeff Jones quit precipitously. He left on the table hundreds of millions in stock options should Uber go public. Why would someone do that if they were not being forced out? Just grin and bear it and get to the finish line. Well, apparently he found the ethical standards and cultural conditions at Uber so unappealing and reprehensible and continuing that even the allure of huge rewards wasn’t enough to suffer through. Oh – and it wasn’t the end of his career by any measure in doing so. Today, he is CEO of HR Block.

There is life aplenty after Uber. We will all find another better deal. The Uber IPO is unsafe at ANY price!


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