The UBER IPO valuation does not rhyme with performance, technology future
By Matein Khalid: Chief Investment Officer and Partner at Asas Capital
Uber Technologies goes public in the most controversial and global tech IPO since Facebook seven years ago. Uber bulls claim that the ride sharing colossus is another embryonic Amazon, a firm that will dominate the digital constellation of the next two decades. I disagree. Uber loses $4 billion per annum and has already been forced to surrender Russia/CIS to Yandex, China to Didi and Southeast Asia to Grab. This Amazon wannabe is another potential stock market debacle, just like – surprise, surprise the Lyft IPO. Friends swoon at Uber because they marvel at its $3 billion buyout of MENA E-mobility firm Careem. Yet $3 billion is chump change in Silicon Valley and does not change the strategic calculus for Uber. As the Lyft IPO in March proves, investor are merciless with firms whose valuations are loony tunes and whose business models are suspect.
Uber’s prospectus filed with the SEC has deflated the $100 – 120 billion IPO valuation hype deal brokers have been selling to gullible GCC investors for the past year. The new price range projects a $80 – 90 billion valuation for the Uber IPO. Uber’s ride bookings are dangerously concentrated in five global megacities – New York, London, Sao Paulo, L. A. and San Fran. Uber Eats is a joke, an Old Economy meal delivery business with a mobile app – Dabbawallas R Us. Uber’s taxi drivers and host governments are hostile to many of the company’s revenue enhancing initiatives. Above all, horror of horrors, Uber’s revenue growth rate has plummeted from 69% in the March 2018 quarter to only 20% in the first quarter of 2019. I got a MBA (Master of Bubble-ology and Amnesia) from Wharton but even I can guesstimate that slowing revenue growth is like Count Dracula’s cross of gold to the stratospheric valuations of this ride sharing (urban taxi service) IPO.
Uber will also have to raise incentive payouts to drivers, a scenario that will slash its revenue growth metrics. It may be forced by legislation to increase the share of its drivers in its fares in a white hot US economy where the unemployment rate has fallen to 3.6% amid anti-immigrant policies from the Trump White House.
Uber’s loss rate has doubled to $1 billion a quarter. Bad news. Will the stock market tolerate $8 billion in operating losses in 2019 and 2020? Dream on, Mr. Bull! In fact, the biggest strategic impediment to invest in Uber’s IPO for me is my conviction that its business model/platform is already absolute. Google’s Waymo is already testing a fleet of robo-taxis in Arizona. There is no way Uber and Lyft can compete with Waymo and GM Cruise. The long term operating economics and strategic positioning of Uber spell a future brontosaurus to me. After all, robo-taxis will be far cheaper and safer to operate than human driven taxis. It is the Waymo IPO that will change the world and print money for public shareholders, not the poor sad sacks who have been skinned alive in the Lyft IPO-and will get skinned alive in the Uber IPO. Even Uber’s self-driving unit, financed by Softbank and Toyota Motors, is too early stage to compete with Waymo. Uber is second fiddle to Waymo in the quest to dominate the global autonomous vehicle driving business. Uber is the sizzle de jour but Waymo is the real steak.
The hype in Twitter and online trading chat rooms tells me retail hysteria is approaching a crescendo as the Uber IPO D-Day approaches. So even a first day blowout will not make me bid for Uber. After all, all that Lyft provided at 85 was an excellent opportunity to short the mobile ride sharing platform’s IPO at a nosebleed valuation.
The size of the Uber IPO reinforces the bearish case for me. At $10 billion, it is the biggest tech IPO since Chinese E-commerce firm Alibaba in 2014. Ture, Uber is a global brand and its IPO will trigger a speculative mania on Wall Street. True, I did not live through Dutch tulip mania or the South Street bubble but I survived the dotcom bust, the Nikkei Dow collapse and the Russian rouble/Asian currency meltdown. Value is my lodestar as an investor and the Uber IPO offers no value to me. It is moronic to buy a hot IPO on its offering date, when shares go parabolic. I hope to make big money shorting this puppy as I expect the Uber IPO will fall 50% sometime in 2019, as the Facebook IPO did in the summer of 2012. So get real. Get smart. Get short!