Complex Made Simple

My bearish call on Uber IPO was a strategic winner- Expect the worst

Expect a Tsunami of selling in UBER in the months ahead

Even $20 billion is a nosebleed valuation for a company that could well lose $8 billion in the next two years and whose revenue growth has plummeted to 18% Nobody in the world knows exactly what is going on in dozens of countries where they claim rising market share Uber is way behind Waymo in the autonomous vehicle revolution

By Matein Khalid: Chief Investment Officer and Partner at Asas Capital

I had published a column in the UK/MENA press arguing that the Uber IPO was “absurdly valued” last week. I was vindicated with a vengeance when Uber priced its IPO at $45, well below the level Saudi Arabia’s uber-sovereign wealth fund PIF invested $3.5 billion in the hose of Travis (now Dara) three years ago. Uber opened on the NYSE with a whimper, not a bang and closed at $41.50 on Friday or a pathetic $69 billion market cap. 

I heard that Uber only wanted to allocate stock to the world’s largest institutional investors and not trading Johnnys like me. 

Yet demand for the biggest IPO on Wall Street since Facebook was a world class flop. The gullible dudes and dudetes East of Suez who were conned by private bankers into expecting a $120 billion post IPO valuation must now cut their losses as they get skinned alive, just as I predicted in my pre-IPO column. 

Suddenly retail investors and hedge funds scorned by Uber as mere flippers, were desperately allocated paper on a day when Trump did another nasty tweet on the China trade talks and $200 billion in tariffs went live. What next?

I expect a tsunami of selling in Uber in the months ahead that will accelerate the stock’s decline to my proximate target of $30. Why?

One, even $20 billion is a nosebleed valuation for a company that could well lose $8 billion in the next two years and whose revenue growth has plummeted to 18%.

Two, holders of Uber convertible bonds and Silicon Valley late stage down rounders are natural sellers of stock on the Big Board to hedge their positions that now hemorrhage money.

Three, Uber insiders will scramble to get out before the gravy train gets derailed, as it was at the IPO. Note that this is one of the oldest unicorns in existence and panic has replaced the previous swagger among insiders and financiers.

Four, Lyft is down to $53 now, down from a $85 high just after its IPO pop. Uber, in Sophoclean tragedy of hubris gone ballistic, could not even manage a one day pop. Hero became zero the moment the stock broke its IPO underwriting syndicate.

Five, Uber does not break down intelligence on “unit economics”. So nobody in the world knows exactly what is going on in dozens of countries where they claim rising market share. Frankly, I do not blame them for withholding unit economics data – it must be even worse than I calculated in my thumps down on the pre-IPO valuation of $76 billion Silicon Valley deal brokers pressured me to accept. As the Texan oil men say, sure I was born at night – only not last night.

Six, Uber is hostage to taxi driver demands for higher pay/revenue share in its biggest urban markets – London, New York, San Fran, L.A and Sao Paulo. This is an unwinnable fight in a populist era and a white hot labour market.

Seven, Uber losses have doubled and its EBID margins are a negative 15%. I do not need to have the brilliance of a Chartered Accountant to know something is rotten in the house of Dara Khosroshahi or at least in his business/financial model.

Eight, Uber’s revenue growth has plunged to 18% from 70% in the past year. Only a lunatic/stock market masochist will pay seven times revenue for a company whose hyper growth era has long gone. This is a unicorn whose horns have been ripped of its nose.

Nine, Uber has been forced to exit China by Didi, Russia/CIS by Yandex Taxi and Southeast Asia by Grab. Careem? Irrelevant in a global context.

Ten, Uber is way behind Waymo in the autonomous vehicle revolution. Uber has no pricing leverage and is destined for profitless growth, the kiss of death on Wall Street (ex. Amazon).

Eleven, ugly truth is Uber’s business model is fatally flawed, I expect Uber will fall to my ultimate target of $10 – $12 in the next twelve months. I may be wrong but what if I am right. What then?

I know many investors in the GCC who expected Uber to go public at $60 a share or higher. I pointed out that Lyft was 10 times oversubscribed and is still trading almost 30% below its IPO offer price. The Uber IPO was 5 times oversubscribed.

The real “sizzler” in the IPO market last week was Beyond Meat (symbol BYND), which tripled above its IPO offer price. Unlike Uber, Beyond Meat priced its IPO and its shares were a fairy tale on the stock market, rising to $70 a few trading sessions later.

The failed Uber IPO now deflates the wider Silicon Valley private equity tech bubble. It will be prudent for investors and auditors to mark down their “digital bubble” era pre-IPO unicorn puppies by 60 – 80%. Even Palantir and Airbnb will not be spared the coming bloodbath. Welcome to Nasdaq 2000 AD. What a shame, what a world!