Carnegie Investment Counsel Blog

10 Reasons Why the Uber IPO is a Sucker's Bet

Posted by Richard Alt on May 8, 2019 4:04:49 PM

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The Uber IPO is a hot topic among investors today. Uber Technologies, Inc’s IPO is expected to be priced Thursday and to start trading Friday.

Even on the secondary market, with no profits and based on other analytics, it is a company that we would consider to be speculative in nature.

That isn’t to say it won’t do well for a period of time…as some bets do…but the fundamentals would not put it on our buy list at this time. Without further ado, here are the 10 reasons we feel that the Uber IPO is a sucker’s bet. 

1. Uber is losing $3 BILLION per year!*

For a company with revenues of less than $12 billion** this is a black hole with no vision of profitability in the near term.

2. Lack of capital discipline

Not profitable in their core, unique business, still the company has ventured into side businesses that are losing even more money; autonomous cars, third-world countries, bikes, scooters and flying taxis.

3. Inexperienced Management

Management is exceptional at raising capital, not at operating a firm to make money.  Rachel Holt who runs North America for Uber recently stated, “We’re fortunate to have a healthy, growing business.”  See #1.

4. Early investors are the only smart investors.

This company has diluted so many shareholders in each subsequent funding round that only investors in the first 5-7 rounds will likely make money. If Uber has a future, why are founders selling now?

5. Autonomous cars

It will take a few more years, but eventually we won’t need drivers to ferry us around.  Even Uber is trying to put money into this technology that will make the entire ride hailing concept unnecessary.  Deeper pockets will win this battle and it will be Google, Apple, GM, Toyota or a combination with their own app. 

6. Goodwill is already crumbling

Drivers are requesting “worker” status, striking in London, demanding employee benefits, more pay per mile, this is while Uber is losing money and needs to reduce the cost of each ride.

7. Poor public relations

Claims of sexism, multiple current lawsuits, #deleteuber campaign, all this on a company that is merely an app?

8. Growth is at a peak

The number of available drivers is diminishing, the target markets have already been saturated, where to go from here for future growth?

9. Lyft IPO

The IPO on Lyft has been a failure for anyone who took the bait, this on a company that is losing less dollars per year than Uber.  Losing over 20% in two months while the market is positive is the wake-up call of the real world telling you what you are worth.  Read the Wall Street Journal article on JPM being hired to support Lyft shares after the IPO, and the largest bank in the country couldn’t put enough lipstick on this pig.

10. Greater Fool Theory

The only investment professionals talking up this investment are the very people trying to profit from the event.  The ability of Wall Street to promote a story stock and sell greed is on full display.  The idea is to buy shares early and sell to the next fool at a higher price, regardless of the value of the company.  Don’t be the next fool. 

Footnote: Refers to Loss from Operations for years ended December 31 2016, 2017 & 2018 as per Uber Technologies, Inc.’s SEC filing Form S-1 registration statement. Refers to Revenue for year ended December 31, 2018 as per Uber Technologies, Inc.’s SEC filing Form S-1 registration statement.

Disclosure: The opinions presented are subject to change without notice in reaction to shifting market conditions. Many of the opinions presented are derived from analyzing data and comments provided by Uber Technologies, Inc.’s SEC filing in its Summary Consolidated Financial and Operating Data section, Risk Factors section, other relevant sections from the filing, and also by analyzing other third party sources that are widely used and deemed reliable, Carnegie makes no guarantee as to the accuracy of the information provided by these third parties. The opinions provided are for general information purposes only and should not be considered a solicitation to effect transactions in securities, or personalized investment advice.

Richard Alt

Written by Richard Alt

Richard Alt is Principal and Chief Investment Officer where he oversees the investment process of the firm. In this position, Richard works with select clients to understand their financial objectives, then customizes and manages an investment portfolio to help them reach their goals.

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