- if it closes below $45(its IPO price) it will be the first time since 2008 that the happened for a major IPO
- TD Ameritrade executed more orders in the first 10 minutes of trading than they did for the first 2.5 hours with Lyft.
- Uber is 9% of all trading at TD Ameritrade, retail loves this stock,
- market is down today, which isn't helping Uber but its probably not much of a factor
- Kudos to Citadel, stock opened without a hitch and they seemed to nail the opening price,
- Boo to the underwriters(Morgan Stanley), who seemed to misjudge the market's appetite, important to note that major buyers at IPO, Fidelity and such already had exposure to Uber pre IPO so maybe this staying private longer but selling shares to public fudns had an effect?
- interesting piece on how Uber has grown its market cap in the past few years at the expense of its share price and how that effects later employees.
- later investors like the Saudi Public Investment Fund can’t be happy with the opening.
- from Bloomberg without comment...."Overheard trader on the floor: “That’s what you get when you don’t make a profit. If you don’t make money, people don’t want to buy you.”
- Biggest IPO since Facebook, that's something to be proud of!!
Date:
- June 4 is expiration of 25-day quiet period for analysts at underwriting banks. Expect bullish initiations on this date
- Nov. 6 expiration of Uber's IPO lockup. Large selling pressure expected to be asserted on this day as is typical for most IPO's.
Personal thought. It may be tough for employee's to not see this pop to say $65-$70 but in the long run its almost certainly better to open flat than to pull a "lyft" and get a first day pop that you price your options at in your head and to then have to cut that price by 40% before you get a chance to sell.
> Boo to the underwriters(Morgan Stanley), who seemed to misjudge the market's appetite
Who suffers if the price is quickly adjusted downward by the market? How is that different than it being released at that final market price from the get go? Naively I would think that setting it too high ensures maximum value is captured rather than going to early traders.
The investment bank sells a lot of shares to its own preferred clients. If the price then drops (because the initial offering price was too high) those preferred clients lose money.
So the bank has every incentive to price it low, and usually does. So when the market goes even lower, we know that the IPO was done out of desperation and that early investors who had influence over the IPO price were eager to dump some or all of their positions.
One day is too soon to know for certain that this happened. But if the price is still down a week or two later then it probably did.
> So when the market goes even lower, we know that the IPO was done out of desperation
How is that the correct conclusion. It sounds like the correct conclusion is they still over estimated the market price. Nothing about desperation for or against.
> It sounds like the correct conclusion is they still over estimated the market price
The bank has every incentive not to do that. The bank must juggle the needs of its various constituencies, preferred investors (who provide capital expecting not to have it lose value right away), the firm (which wants to raise capital) and existing investors (who may want to liquidate).
If a bank routinely over-prices IPOs, then preferred investors will stop providing capital. If the bank routinely under-prices IPOs, then firms will choose other banks to underwrite their IPOs.
In addition to the above, the investment bank owns a lot of inventory and strategically buys and sells in order to help keep the price close to the expected price. When this doesn't happen, it might be because the bank couldn't afford to constrain the price movement and had to settle for the bad optics.
This is how the system is supposed to work, but the main reason an IPO would be over-priced (all things considered) is if the existing investors had too much say in the price, since this tarnishes the bank's credibility for future IPOs events.
They explained it pretty succinctly. Grossly oversimplified: the bank is motivated to accurately price in order to preserve future business from e.g. institutional investors. Overprice and your investors bleed. Substantially underprice and you leave money on the table, less likely to be picked for future offerings. Come close and everyone's generally pretty happy.
I'd be keen to hear why you believe it's "just not right at all."
>If the price then drops (because the initial offering price was too high) those preferred clients lose money.
Unless these preferred clients are active traders, this isnt a problem. Remember when government nixed fiduciary resposibility?
Just slide a soon-to-drop, over-valued-at-IPO stock into say,... someones' retirement account? Wouldnt it be weird if a bunch or Morgan-Stanley-managed 401Ks were shifted to include that?
Especially if the bank managing the IPO gets a cut of the cash, there's no downside to such. At least for them.
> Personal thought. It may be tough for employee's to not see this pop to say $65-$70 but in the long run its almost certainly better to open flat than to pull a "lyft" and get a first day pop that you price your options at in your head and to then have to cut that price by 40% before you get a chance to sell.
The reality is Uber isn't worth $65-70 today given long term risk. As many others have pointed out opex is well over 150% of revenue. Now that could be fine if the long strategy can reel that in over the next decade. I don't see any of that other than a smattering of "bets" (Uber Eats, scooters, etc). I could very well be wrong but I intentionally didn't buy given what all tech IPOs have done lately. As a consumer who doesn't have the option to get in early I'm at the mercy of the large firms who can take profit off large positions which snowball bringing the valuation back to reality. I think we see more of these "backfires" as people are sick of propping up large financials and more caution around waiting for stocks to settle. If Uber employees expected it to pop north of $50 they're going to be waiting a while. There's no reason to buy now, risk is high that a few large trades sinks the stock into mid $30s or lower territory.
I think the sensible conclusion here is that the two companies have such different business models and goals that it doesn't make much sense to compare them at all.
facebook had paying users AND advertisement targets AND an ability for the paying user to precisely target an ad at the product AND an extremely powerful incentive for the product to not move to competition (product's friend network).
out of the above uber has only paying users - who are ready to jump ship to competition for a penny per mile.
Am I the only one that feels that Uber has a ton of valuable location data? Aren't rides to a particular location similar to FourSquare checkins? "How many customers are likely to come to your restaurant every Saturday night? How has that changed over time?"
I feel like Uber's biggest revenue generator would be putting a small smartboard in front of passengers and selling targeted ads.
Data isn't valuable. Using that data to create a product that people will pay for is (e.g. showing an ad to someone en route to the restaurants across the street).
Hah, I guess they'll do that within the next year (the ads thing). Tell drivers they'll earn more if they did that, or the passenger can hit a button on their phonw to turn the thing off for a "premium ride". Just xx cents per ad-free minute!
Or most likely the driver will agree to put the running gadget in the glove compartment for an off-the-app tip.
I think there's been a decade or more or irrational fixation on data-driven advertising at this point.
The market is convinced building these huge treasuries of consumer data, at any expense in cost and creepiness, will result in wildly better advertising performance. We've given Google and Facebook 12-digit valuations on that principle.
But advertising is a 80/80 problem: You can get to 80% of potential results easily, and spend 80% of your money, effort, and goodwill chasing the rest. Content-based ads (think the early era of Google AdSense when the ads would be text or fall back to PSAs) sell pretty well, considering you didn't need an exabyte of profile data to build them.
Eventually, fundamentals have to come into play-- these companies need the revenue numbers to justify the valuation-- and the only way to get there is to charge premium prices for their advertising services. At that point, the music stops, when advertisers realize the cost-per-acquisition is poor compared to much cheaper, more scattershot technology, or even just earlier stops on the targeting continuum.
I've been in an Uber in Boston where this was the case. They had a tablet hanging off the front passenger seat that alternated between trivia questions and ads.
At least Facebook isn't paying for its users. I think that Uber is still losing money on every ride, on average. That might not be the case in a few mature, highly urban markets, but if Uber dropped all unprofitable markets, I doubt their market cap would be what it's at.
I think Uber had better hope that this isn't the relevant comparison. Facebook stayed low for 5 quarters and then was buoyed back into growth by like 33% or so operating margins.
It feels like Uber is a really fucking long way from 33% operating margins.
But to that point there was no "IPO price", i.e. the price paid by institutional clients before the first day of public trading, so there was nothing to fall below (there was a "reference price", but that's just more like the MSRP given by the stock exchange, not what anyone actually paid).
Really? I was under the impression that closing below your IPO price is quite rare indeed. Do you have other data?
Edit: actually, just saw a NYTimes article with info that it is indeed rare:
Since 2000, only 18 companies valued at more than $1 billion and listing on American exchanges have opened below their I.P.O. price. On average, tech stocks have jumped — or “popped,” in Wall Street parlance — 21 percent on their first day of trading over the past 24 years, according to Dealogic.
I would call 18 common, relative to the number of recent IPO’s over 1 Billion dollars. It’s definitely not the majority, but it’s common enough to make leverage extremely risky.
You have an odd definition of "common". That's 18 over a total of nearly 20 years. The billion threshold is for total company valuation, which at least recently is most companies listed, not amount raised.
As of today, 15 of the last 50 IPO’s where down, with one exactly breaking even. I think most people would call 30% common.
2008 has 31 Total IPO’s, restrict that to 1+ billion and you are not talking about a huge list. Restrict that to an unusual few years and it’s easy for an abnormal but meaningless pattern to show up. But, we have no need to make such assumptions.
PS: Facebook is something of an oddity, opening day has technical issues which ended up inflating the price.
Alstom and CIT Group where both top 20 IPO’s of all time and they fell opening day. Several others where up and down at various points in the day. Which is more my point, being down at some point on opening day is fairly common.
Saying it has not happened in 10 years is not the same as saying it’s uncommon. 1+ billion dollars IPO’s is a tiny sample set and completely arbitrary cutoff points. Go back another 8 years and you can find 18.
> If the closing price is below the IPO that is generally regarded as a failure and may imply over-valuation.
Generally regarded by whom* exactly? The world is full of examples of IPOs that did badly on opening day/week but soared like mad afterwards. These generalizations and pretense of knowledge helps no one; especially considering that "over-valued" is not something that can be determined in a short period of time as value is relative to the context in which the asset presents itself.
* as a non-native English speaker, did I use whom correctly or should it be "who"?
It’s considered an over-valuation by investors and anyone who has ever worked in a sellside investment bank or on IPOs.
The goal of the investment bank is to work with the company to come up with a sensible valuation that will clear and pop on the IPO date. The bank has to take into account the market conditions and investor appetite when structuring the trade and setting the price. It is also why you hear of company’s pulling out of IPOs when market conditions are not favourable.
I don’t follow your point exactly, if the value of the asset is relative to the context it presents itself, and the price you set for the IPO is not consistent with the said context, then you are incorrectly valuing the asset. The asset can be under or overvalued.
For the record I have actually worked on IPOs at an investment bank structuring these kind of trades, so it’s not a pretense of knowledge on my part.
It reflects badly on the investment bank. But doesn't mean anything about the companies fundamentals or where their stock is going to be in a year. Friend of mine bitched that when his company went IPO the bank priced it low and the result was the bank made a fortune and the companies war chest was smaller than it would have been with a higher initial price.
You used whom correctly, but an English speaker wouldn't notice if you used who either.
> June 4 is expiration of 25-day quiet period for analysts at underwriting banks. Expect bullish initiations on this date
Why? There are plenty of examples of equity research analysts pulling no punches on names that the other side of the Chinese wall took public months earlier. And Uber is a classic opportunity for a smart young analyst to get invited on CNBC by throwing some sharply worded shade in their initiating coverage.
For your point on TD Ameritrade, they're offering commission rebate first 5 days. Don't believe they offered that for Lyft. They're saying it's because they did not participate in Ubers IPO.
Because they think it will go even lower and want to get out before losing more? Alternatively, they may have got in at a lower price and are still taking a profit.
It's nothing like the .com boom, CNBC was everywhere. Uber just happens to be really well known by everyone and is thus getting a lot of attention. Your hair dresser isn't likely talking about the Zoom IPO like they would have in 1999.
1998-1999 was sooo crazy. Most stocks kept climbing, high profits dealing with options (calls/puts), almost every week me and my friends celebrated profits. I remember thinking "it cannot be this easy, but it looks like that it is". Then came the big surprise, hehe. Luckily I have always been defensive so I didn't lose a lot of money, but still... .
"JOE KENNEDY, a famous rich guy in his day, exited the stock market in timely fashion after a shoeshine boy gave him some stock tips. He figured that when the shoeshine boys have tips, the market is too popular for its own good."
In case you're not aware, it's in reference to a famous quote by Joe Kennedy, "You know it's time to sell when shoeshine boys give you stock tips. This bull market is over." As the story goes, less than a year before Black Tuesday, a shoeshine boy told him to "...buy Hindenburg."
should really start looking at this from the underwriter and issuer perspective to understand the success story here. Retail buys ticker symbols that have been marketed to them. Everyone else dumps. Company made a ton of money and can do whatever it wants with it, they gain nothing from secondary market trading today. VCs, founders and employees can't sell for another 60-90 days, but founders can give themselves big bonuses (and employees too but I mean.. lets be honest)
> That's an interesting definition of "made"... assumes the concept of liquidity has no meaning.
Thats interesting definition of "literally traded a bunch of shares to underwriters in exchange for $8,100,000,000 and let the underwriters worry about liquidity on the stock exchanges"
Uber has dollars for the shares they sold. Liquidity is not a concern for the party of the transaction I talked about.
...aaaand, Uber (meaning, the owners of Uber pre-IPO) has less ownership in the business afterwards.
Sure, you can argue that the $8.1B is something "real" that the owners of Uber have more of, afterwards.
But you also have to acknowledge that the business of running Uber is also something "real" that the owners of Uber have less of, afterwards, having traded it in a heavily-scrutinized auction.
If you have an asset and someone pays for that asset with a more liquid asset, then you now have that more liquid asset
In this case Uber Inc exchanged illiquid stock for liquid dollars.
Why the semantical debate? Did the use of the word “make” really bother you? What about when there is dilution like in most funding rounds? Shares of equivalent value are literally made. In this IPO Im not sure if that happened with the sale to the underwriters or not.
This kind of asset exchange is what we are all trying to do, exchange one asset for a more liquid one, dollars. They succeeded in doing that to the tune of 8.1 billion usd. The same us dollars that give access to everything in the global financial system via wire transfer.
> "market is down today, which isn't helping Uber but its probably not much of a factor"
> It's actually a big factor.
I assume you are trolling but just in case....
the SPY is now up on the day and Uber is still below its IPO price, so I guess we can put to rest the idea that a down market is a big factor in Uber trading below its IPO price.
Just FYI many people consider “Gypsy” a slur nowadays since it’s commonly used in regards to illegal behaviors (like running outlaw cab services). I understand your intent was not to offend, but this is perhaps why the parent referred to it by a different name. See more on Wikipedia: https://en.m.wikipedia.org/wiki/Names_of_the_Romani_people
There's way too many comments in this thread comparing Uber's non-profitability to Amazon's which I think is quite silly. Amazon lost $2.8 billion over its first 17 quarters while Uber lost $4.5 billion in 2017 alone.
Also comparing Uber to Facebook is quite silly too. Facebook had a lot more users than Uber but they are also different types of users. One is a free user with hope for targeted advertisement (in which the advertiser gains/loses money) whereas the other is paid users/riders (but in this case Uber has been losing money each ride and I don't see it changing). Also advertisement has huge margins with not much cost from Facebook's pov but ride sharing logistics is completely different with very little margin where the driver needs to get paid. Drivers are already complaining that they are not getting paid enough for rides and asking Uber to take lesser cut of the ride. So Uber can't raise their cut over their current 20-25%. Facebook's advertisement business doesn't have this problem. Nor does Amazon as they can make their logistics more efficient.
Amazon is able to lower it's cost with economies of scale but I don't see Uber being able to achieve that as their costs only increase as they scale as they lose money on every ride. The only way I can see them become profitable is if and when they achieve driverless cars, which they are betting huge on, but that's a long way to go. Uber is betting on driverless cars to lower the cost per mile. But I think Tesla will beat them to market much much before them considering Tesla already has the tech. Elon even hinted on the Tesla taxi fleet in the next couple years.
Now I realize Elon's got poor judgement on timing but I still think they will be able to achieve that much earlier than Uber. And if they do, I honestly don't see Uber & Lyft surviving.
Amazon is definitely misleading: they became profitable within specific business areas (e.g. books & music first) but invested that money in new businesses. The analogy would be if, say, Uber was profitable in San Francisco and Los Angeles but still bootstrapping Phoenix and Denver.
I haven’t read anything which suggests they aren’t subsidizing rides in their most established markets just like everywhere else, and both their drivers and customers can switch to competitors so easily that it’s not obvious how they can change that.
I believe they are, by some fairly loose accounting definition (i.e., not counting back office expenses, capital expenses, etc), profitable on non-pool rides in core US cities.
> Also comparing Uber to Facebook is quite silly too. Facebook had a lot more users than Uber but they are also different types of users.
The main difference seems to me that Facebook enjoys a network effect: you can move to a different social network, but who will you find there? While you can download as many taxi service apps as you want and use one or the other, the one that has the cheapest offer. If an Uber competitor comes up with autonomous driving first and offers ride for half of Uber's price, people will switch instantly.
That's a very good point too which I missed. People don't care about whether their friends are using Uber or some other app. They care about whether the ride is cheaper. It's a bottom of the barrel pricing game in ride sharing apps.
From what I have found personally, the wait times on Uber and Lyft are the exact same in my area in Canada. Every driver which is on Uber is also on Lyft. So I don't think the network effect is helping them much as riders aren't really getting anything different in terms of wait times. Also this is even after Lyft barely being about 1 year old in my city while Uber has been around for many years.
Uber pool gives it a very strong network effect. You need enough riders going in the same direction as you at the same time. When I do my morning commute, I can't take Lyft because there isn't a critical mass and there isn't room for two ride sharing networks. Uber is consistently cheaper and has shorter wait times.
Well said! Given that UBER actually follows a model that looks like: Don't own the equipment, rent people who own their own equipment, be the middleman. It's quite reminiscent of Truck Driving or some sort of specialty guildswork, like carpentry or other professions there are Guilds for. UBER is a replicable model for any guildswork, taxi [guild] service conveniently benefitting from GPS and mapping. However, since UBER owns not the equipment, and only rents the laborers (without a strong "come in to the office" type of contract) it's hard to see where the value of this company actually lies. Of course, due to their brand monopoly, or duopoly, they are able to keep strength for a while. But, eventually, guildsworks in general will probably be delegated to some other motherlode app. If they need help growing or figuring out how to actually make a profitable company, they need to stop thinking about how to be a taxi service, and how to be a transportation provider.
> Also advertisement has huge margins with not much cost from Facebook's pov but ride sharing logistics is completely different with very little margin where the driver needs to get paid
Why is this? In both cases it seems the cost is paying a bunch of servers and engineers to run a website. So why is Facebook seemingly more efficient?
Nope. Market share and pricing power in digital advertising comes from user base and targeting capability. As an advertiser, I can reach most of the population in many country through FB/IG and YouTube. Their targeting data is also pretty good. So they claim a lion's share of the market. Also inventory expands as userbase expands and the userbase doesn't really have other options with similar network effects.
Uber on the other hand has plenty of competition. Their total cost to user has to be competitive vs. not just taxis but possibly owning a car. There's only so much they can charge for a ride and they pay a ton of incentives to get drivers to drive for them in many markets. So the available space for profitability is constrained.
So basically advertising is less constrained on the upside than transportation. The whole bit about 'they have to pay their drivers' is a red herring - the real constraint is that the price the riders are willing to pay is more constrained / lower than what advertisers are per user.
That's part of it. The other part of it is that digital advertising business models turn out to be close to zero cost. There's very little "product cost" when you amortize tech cost over billions of ad impressions - the "cost" really comes from "reduction in addressable market" - ie. what portion of the audience will stop watching the platform due to ads. At least for Google and Facebook, the answer seems to be negligible proportion and in China at least, publishers are finding that many of such people are willing to pay for an ad free experience if you have killer content.
Taxi service is a much more constrained business - you have to pay out product cost plus some incentive to generate supply but you have a strict price ceiling on scaled demand and a lot of competition. The answer for the previous generation of entrepreneurs in this space was to execute regulatory capture and institute a system of restricted supply to boost prices (ie. Medallions, permits etc). So it's going to be interesting to see how these businesses evolve.
Mostly because Uber needs to pay the drivers and they can't really take more than 20-25% cut. Drivers are already complaining that Uber should take less as they are barely making much money especially as there are now a lot of drivers.
Should we though? Technology was far inferior back then and it would be much cheaper for amazon to achieve the same thing as they back in the day if they had today's technology. Amazon also has a lot more gears moving around in their logistics as compared to Uber.
Main competitor here is traditional taxi (can be hailed, paid and tracked through app, has dozens of competing operators, has nice cars). If Uber would raise prices their only appeal would vanish.
If I take an Uber instead of a taxi it’s solely because Uber investors sponsor my ride. The taxi experience is 100% the same thing. I don’t think this is a great business model.
And then new competitors will spring up who can undermine those prices. There is absolutely nothing unique about what Uber does to keep people as customers.
They are way into debt financing and have a $25B bottom line, this is a "when you owe the bank a million dollars..." situation now, nobody involved is going to let it run out of money and throw the whole house of cards away.
> Uber might run out of cash before the competition is crushed.
True, but time scales matter. Given their current position, it might take 20 years for that to happen. By then, who knows where they or the market will be.
Sure but there are quite significant competitors around. Lyft is a major one in the US. But countries like India and China, Uber can't even survive as the competition is beating them to it.
According to this article, stock was valued internally at $49/share in 2016, so anyone joining in the last three years will not have enjoyed any sort of rocket-ship growth.
If you’re joining a $60 billion company with thousands of employees expecting rocket-ship growth, that’s kind of on you, I think. You wouldn’t expect that from a public company; why would you from a similarly sized company that just happens to be pre-IPO?
We're not even talking about rocket-ship growth here. We are talking about option strike prices losing money in one of the most favorable economic time periods where massive, healthy public business did have monstrous growth.
I would have at least expected price parity with other large companies - even that assumption would have been wrong.
The Silicon Valley giants don't do options anymore, but RSUs (restricted stock units) which are simply share awards. There's no strike price to worry about, but of course it's a bit of a disappointment if you expected Uber to be a $100B company out of the gate.
Still, Uber employees will be happy that they can finally sell those RSU awards (in six months when the lockup expires).
Uber, Airbnb and the rest definitely give RSUs. Details may vary but they may use contracts like “double trigger vesting” where you don’t actually receive the shares until they’re publicly traded.
Expecting price parity with other large companies, okay. But the expectation in 2016 wasn’t for Facebook etc. to be at today’s prices in 2019, or they would have been priced higher then.
Within the timeframe I listed [2016-2018] none of the companies I listed performed a stock split. Neither did Apple. Apple's most recent stock split was 2014.
How much has Google grown in the last three years? Or Facebook? Or Netflix? Or Atlassian? Uber not growing in value in three years, in the hottest economy, is a disaster
It shouldn't matter a lot since I am 99% sure that they were issuing RSUs at that time and not options. So the strike price based on 3-years ago valuation is not relevant. Also, I am sure the number of RSUs you got at Uber should have been more than the RSUs at FAANG, to compensate for some of the risks. Now, if an individual Uber employee came out ahead, vs. having joined a FAANG really depends on the offers they had.
It matters a ton. You get your rsu grant sized based on the stock price at the time of the grant, just like options. If that price goes up, you make money... Just like options.
As someone who does work in the space, no, most companies permit transfers. There are mechanisms in place to reasonably limit them, e.g. rights of first refusal and transfer fees. But Uber was unique in the degree to which they restricted transfers.
Matt Levine seems pretty confident that the $48.77 price from private transactions is directly comparable to the $45 IPO price, and he knows his stuff, so I think it's safe to assume he's right.
To add insult to injury for Uber's rank and file equity-holding employees: the terms of Uber's stock offers (at least since 2016 if not earlier) say that you cannot sell your shares until one year after they officially vest. That's right, they tack on an additional one-year waiting period for each block of shares awarded. So if you had shares that vested today, e.g., you can't sell those even when the regular six-month lockup period expires... you have to wait until May 2020.
(source: turned down offer in 2016 because of employee-unfriendly terms)
Given this price (and the likely downward trend to come if Lyft is any predictor), I wonder if Uber and Lyft are really just an act of philanthropy from SF VCs + SA to hungry/drunk/tired city-dwelling folk. If so, thanks guys! (* and you mostly are guys). Next ones on me!
It is never VC money... VCs get paid back few times over. It's our 401Ks that would be automatically funding these IPOs via index funds. So you can say that this is some weird form of socialism enabled by capitalism.
These days, being profitable is considered harmful. More profits = more taxes. Getting virtual “profits” into stock appreciation and structuring revenues to pay nearly zero tax is the name of the game today, and only big corporations can afford it. It is small and medium businesses that pick the bill.
Don't forget also, it's believed that "being profitable" = "you're done with hypergrowth", at which point the whole band of capital looking for 100x unicorns moves on.
Remaining unprofitable is a part of maintaining the illusion that the company has huge upside in the future.
Yes, I suppose this is also correct. I just wanted to reiterate that with modern creative financing, a large company can stay “unprofitable” basically forever and still keep shareholders happy.
Uber isn't rolling profit back into the company like Amazon or others do, they are literally loosing money on every ride. There's no profit to hide from the taxman.
Markets, it's acquiring markets. I'm no Uber fan, but come on, they're moving into more and more cities world-wide, often without competition save the local taxi firms.
It's achieving temporary local marketshare subsidised by massive losses. The moment Uber charges prices it can actually profit from, its “markets” will vanish.
Except it's not acquiring them so much as renting them, paying each month for the privilege to hold on to the marketshare necessary to also lose money in the next month.
Amazon buys a warehouse and then shortly after turns a profit on it which they use to buy another warehouse. Uber buys users and then shortly after borrows more money to buy other users.
Yeah, it's a pretty stupid argument that has somehow become one of those contrarian memes people like to use to appear smart.
I guess it's inspired by Amazon's history of reinvesting, but missing the point that Amazon's motive most certainly was to actually invest into growth.
There are of course many companies that engage in all sorts of morally bankrupt but legal tax optimisation strategies. But Uber is rather different from, say, Apple, in that Uber has absolutely no need for creativity to depress their profit. They are haemorrhaging money the old-fashioned and totally legit way.
That doesn't make sense. The stock grant will still be considered normal income to you and taxed as the salary is taxed. Any difference in the stock price after it vests and you sell will be either short term or long term capital gain.
So if you consider getting all salary in cash and then buying GOOG (or any other stock) with it, you come off only a month or two late on the period for which you are holding the stock. And for that, you lose out on the diversity of the stock.
This also assumes that your GOOG stock starts vesting immediately and there is no cliff. Otherwise, you will be holding the stock for "cliff" period longer if you just get cash salary and buy the stock.
Disc: Googler but this comment doesn't have anything specifically to do with Google. Google is just an example here.
Of course, you want all your stock gains to fall under long term capital gain. Google already has the market price in, but all startups don't.
If you make 200k a year for 10 years, vs get no salary for a startup for 10 years and then its sold out for 2 million dollars, they are completely different tax conditions.
Im not an expert or have been through this, but if you sell 2 million dollars at 15% long term rate vs the 35~% + medicare of salary, the difference will be huge.
If you owned enough assets that could be used as a collateral, yes, you could request $1 salary. Many CEOs, Steve Jobs in particular, used to do that. He already had enough cash for day-to-day expenses (like buying a new Mercedes every 6 months); more significant expenses were financed... differently.
You should be already rich and structure your capital properly for this to work.
I get that, as odd as it is. But my understanding was that Uber wasn't doing that at all. I haven't heard of them using slightly dubious accounting tricks to pay more money to shareholders while showing no paper profit. I thought their expenses were simply way ahead of their revenues with no clear way to bridge the gap, and the shareholders are losing money and being diluted too.
Amazon didn't turned profit for first 5 years or so after IPO. If you go back 15 years down the history, you will find many articles/analysis doubting if they would ever become profitable. However no one doubted that online retail was the future and brick-and-mortar stores will increasingly become part of the history.
I see a lot of parallels here. No one doubts anymore that app-based cabs are the future and traditional taxis business is pretty much done now. So if you take that as foundation then there has to be one or two companies that would eventually dominate this business. With first mover advantage, Uber has good chance of being one of them.
Amazon also built out a huge logistics infrastructure which they own and is hard to replicate (not just know-how, but warehouses and robots). Uber don't own the cars or employ the drivers, they have a phone app and a brand name.
I don't understand why uber's costs don't scale well. They make an app that drivers use. They're not having to buy cars or hire drivers to grow. They just need their app to function. What is all their money going towards?
Is all that money lost just subsidizing the cost of the ride? If they stop subsidizing the drive price, which they will have to at some point I imagine, will people just abandon the service?
There's two ways it goes: squeeze drivers or squeeze riders. The ironic part of their position is as it makes a market on both sides, squeezing either will result in a loss of riders/drivers to alternatives.
This writing has been on the wall for ages, but people keep looking past it.
Uber I think somewhat internally knows this, and have thus tried either moonshots or diversifying. Uber Eats actually looks to be profitable since you take driver surplus and turn it into profits, simplifying a bit. Self driving moonshots are just that - moonshots.
You can already see the effects of them squeezing drivers with recent strikes and issues including a possible 600M+ arbitration costs from drivers.
Good point. Have you read Hubert Horan's articles on Uber (especially those on nakedcapitalism.com)?
Retailers can use economies of scale to lower prices and increase variety of products. There are no economies of scale in Uber the way it's structured now and the service is largely homogeneous. There could be economies of scale with self-driving cars, but why should they be the winner there?
The only way they managed to offer lower prices (which is the main concern to riders) is through VC subsidy. There is simply no way to significantly lower prices for taxis, unless you have self-driving cars.
The only thing Uber has is a limited power of a local network effect which is a relatively weak moat.
I agree that Uber is betting on driverless cars to lower the cost per mile. But I think Tesla will beat them to market much much before them considering Tesla already has the tech. Elon even hinted on the Tesla taxi fleet in the next couple years. Now I realize Elon's got poor judgement on timing but I still think they will be able to achieve that much earlier than Uber. And if they do, I honestly don't see Uber surviving.
He has proved his words countless times now. I have no idea what you are talking about. Only criticism I have about Elon would be his estimations on the time but I work in the tech field too and I can relate to issues coming up which postpone the deadlines.
How exactly is Waymo thought to be the leader? It's like the same argument short sellers have been making for years that Tesla electric cars will be overtaken by other car manufacturers. Come back to me when Waymo has overtaken Tesla in actual and on the market product.
Well, for one thing Waymo's vehicles haven't been involved in any deadly accidents. Tesla's self driving cars are unable to avoid driving into the undersides of trucks. So it's hard to see Tesla as the leader here.
> Amazon, the company that everyone loves point to as an example of how losing money eventually makes money, lost a combined $2.8 billion over its first 17 quarters as a public company, significantly less than the $4.5 billion Uber lost in 2017.
I see no evidence that they lack a notion of how to make it profitable. Are they doing it in the near future? No, but why do they need to? There are clearly plenty of people happy to fund for the long-term payout.
From what I saw in the S-1, their core platform -- which I assume is ride hailing -- was profitable until Q4 2018. They offer heavy incentives in order to compete, but once they're sufficiently established in a market, looks like they can become profitable on that front by no longer offering promotions in order to fight Lyft/whoever.
They just need to stay solvent longer than the competitors, and being in more markets than the competition should help with that.
Their R&D is also massive, but they could stop most of that if they needed to.
As a heavy early Amazon and Uber user, I'd say not really. Both are pretty revolutionary and I certainly have been paying Uber a lot more than I was paying Amazon when they just sold books.
I get how Amazon can be seen as revolutionary, but not how Uber (or even Lyft) is. I mean, when I think of catching a taxi back in the day, the only difference is that I made a phonecall instead of using an app to get the service. If it's the "gig economy-ness" of it, we had hacks in my hometown. Maybe there was a license requirement to be a hack, but it always felt like hacks were just regular schmoes who would charge a flat fee to take you somewhere.
I've had very extensive and very negative taxi experiences around the world. Uber is night and day from a UX perspective. Being able to see where the car is when it's on the way, pre-inputting your destination, paying through the app... The gig economy aspect was definitely revolutionary as well. It's essentially changing the nature of work (love it or hate it).
As much as I love Amazon and always have, in the early days it was "just" ordering books online. Yes, that was great and again the UX was great but it didn't seem as revolutionary as Uber.
I don't see how the UX thing is so revolutionary. I live in a city with 120k people, and the app of the local taxi company here does all of those things as well.
Not OP, but if they weren't doing it before, and just copied Uber, doesn't that show how weak their moat is? The same could happen with autonomous vehicles as well then.
Yes you might be paying Uber more, I pay them about $300-$400 a month between our occasional use and my teenage son getting around (still cheaper than a car + insurance), but they lose money on each ride. Amazon has high fixed costs while they were building infrastructure. Uber has negative marginal profits.
I can't get a clear reading from Uber's most recent financials filing in Feb to determine that they have negative marginal profit. It looks the opposite to me. Given their substantial gross profits, I have to think that they last ride they sell is profitable.
Selling a $20 bill for $18 is unsustainable. Selling a $20 bill for $40 and having $15 of advertising expenses and $15 of R&D expense might be sustainable. I think Uber is comically overvalued here, but still is a viable business which is profitable in its core operation.
In the 1997, Amazon's proposition of "Online retailer" was also pretty far fetched. It wasn't obvious that their model was going to make them one of the largest retailers in the world.
Online retailers wasn't far-fetched at all. It wasn't obvious they were going to become the everything store and dominate the market, but it wasn't like people were perplexed by a business plan of selling books online and sending them to consumers.
If people are perplexed by uber today it's because the unit economics look horrible, and it doesn't seem like they will improve without a major technological advance.
They dropped 20% on day one. I don't think that reflects investor skepticism re: shopping online, but skepticism re: the myriad risks they faced as one of many money losing online retailers.
Even with a major technical advance it's not obvious that they'll have a moat to defend their margins. All of the ride sharing platforms might just end up competing to the death on price without anything else to differentiate on, and in that future I'd imagine the person with the cheapest supply chain will win, and I don't see why that would be Uber.
It wasn't farfetched, everyone had the same idea, there were dozens of online retailers that IPO'd in those years. Amazon was just better managed so it was one of the few that survived the dotcom crash.
Right. At the time, I thought Sears would dominate that business.
They had the big-catalog fulfillment thing down, and had for a century. All they needed to do was take it online. But Sears gave up on general mail order in 1993, when they discontinued their huge print catalog. They thought WalMart and the malls had won.
The idea of "people won't buy things they can't judge by holding it in their hands" was still strong back then.
That's why Amazon was successful selling books where quality was trusted implicitly without that physical judgment being necessary.
TechCrunch did a good job looking back at Amazon's IPO and it's a good read to clarify what Amazon was when it went public (a bookseller, not general retail), how insane its growth was (revenue up about 3,000% YoY from 1996 to 1997, more revenue in the quarter before its IPO than the entire previous year), and how fast the IPO came together (12 days to S-1). Even for all that growth, revenue was still around $15M. It was a minnow but it played all of its cards about as right as it could for an IPO.
> Uber Technologies Inc. is a transportation network company (TNC) offering services that include peer-to-peer ridesharing, ride service hailing, food delivery, and a bicycle-sharing system.
Lyft has to be in business till then. Local taxi companies are more expensive than Uber and inconvenient. Public transport is barely used. Uber is providing a subsidized public service while employing a lot of people.
The moat is there but the question is one of diversification and sustenance as a public company. In the coming days, there'll be a massive internal push to reduce costs, diversify and become profitable. If the foundation of the company is strong, they'll be able to get through this period. Instead, if most of the early employees jump ship (which I strongly suspect is likely to happen), it's going to meander. For Uber's own sake, having a mature and repentant Travis back might not be a bad thing. They'll need a second wind at some point.
> Local taxi companies are more expensive than Uber and inconvenient
Uber essentially sets money on fire in order to make the rides cheaper than alternatives, but that will eventually end. I've got some bad news for you about what happens to prices when that occurs.
Of course that is the ultimate goal of Uber, and all ride sharing systems: to destroy any and all local public transit and competitors, no matter the cost, by setting obscene amounts of money on fire and then, when it's all said and done, they get to be the only name in town and price however high they want.
(Side note, but it's going to be legitimately hilarious when Uber re-introduces the concept of "buses" and tech nerds here drop their jaws in disbelief at how amazing it is.)
> Public transport is barely used.
I've got some bad news about places outside of the US (and even many places inside the US).
> Uber is providing a subsidized public service while employing a lot of people.
No they don't; they actually do not do either of those things. Uber isn't a "public service", by definition, that is, unless words simply don't mean anything anymore. It's a business designed to make money; the fact that you confuse these two proves Uber's marketing is working on you, not that it's actually true in any meaningful way.
They also don't actually "employ" any of their drivers, the largest part of their "work force", and they have argued that position in court as well in order to avoid paying benefits, etc for their drivers. And of course, their inevitable goal is to just move to autonomous cars as far as possible, meaning those "employees" (who aren't actually legally defined as such) will eventually get kicked out of the whole system, if they can get there. Of course, once that happens, the tune will go from "uber employs a lot of people, and therefore they're good" to "why did you ever expect uber would keep employing you? just get another job" over night, without a hint of self-reflection at all.
> (Side note, but it's going to be legitimately hilarious when Uber re-introduces the concept of "buses" and tech nerds here drop their jaws in disbelief at how amazing it is.)
> Uber isn't a "public service", by definition, that is, unless words simply don't mean anything anymore. It's a business designed to make money; the fact that you confuse these two proves Uber's marketing is working on you, not that it's actually true in any meaningful way.
Local taxis are perhaps only more expensive due to Uber burning VC cash to compete?
Public transport is barely used in the USA perhaps but that's not the only market Uber needs to compete in to succeed.
And this isn't taking into account Uber's many run-ins with local authorities, which are dragging on , costing money and have the possibility to shut them out of some markets.
From what I understand Uber's main answer to this is "autonomous taxis" but to me that's a long way from being a viable business model.
Here in Melbourne Australia, Uber has caused the government to deregulate the car hire/taxi business. So the cost of entry for car hire is identical for an Uber driver or other limo/car hire services. It's the cost of the car, the cost of the driver, and the cost of access to bookings.
For street hail, the cost is higher because the government sets regulation about the equipment (eg compulsory CCTV, meters etc).
The net result is that the cost of an Uber ride is almost identical to a street hire, identical to using one of the other apps that are around (13 cabs, Ola etc).
Uber has a name/brand advantage, but it has lost the cost advantage over the old taxi model and it has lost the app advantage as the app is easily replaceable.
Many drivers operate on more than one app and street hail cabs (the "original" taxis) operate on both.
Uber's business model for their core business is unsustainable, the margins and operating costs are identical to other operators, there is no advantage of scale.
In one of Uber's largest markets, NYC, public transport is extensively used, and I assume that many price-sensitive Uber users will go back to taking the subway or bus if Uber raises its fares too much.
Amazon went public in 1997 with revenue of $16M in Q1 of that year. Its revenue was up a startling 1,800% or so YoY. Its losses were about $3M, so about 19% of revenue. Its market value at launch was about $438M, about 27x quarterly revenue.
Uber's Q4 2018 revenue was about $3B, up about 25% YoY. Its losses are a little hard to parse due to some tax shenanigans, but maybe $865M is about right (or maybe it should be worse), so 28% of revenue. Its market cap right now is around $85B, about 28x quarterly revenue.
Uber is valued more for its potential and growth. Uber is optimizing growth and revenue before it optimizes profit (which could take another decade). See Amazon.
"optimizing growth and revenue" by subsidizing the operations. That isn't "optimization", it's sunk cost that will never be recovered.
Uber is already withdrawing from Asian cities (eg Bangkok) where the price of taxis was close to cost, and in other cities (eg Melbourne), where Uber's flouting of the existing law has lead to deregulation, Uber is just another brand in the market. The price of a normal taxi hailed on the street and an Uber (I took Uber to/taxi from the city the other day, non peak, non surge) was literally within 5%.
Uber's business plan under Kalanick was to create a monopoly and then raise rates. Now that Dara is CEO they're trying to legitimize themself, but it's going to be an uphill battle to say the least.
Uber's business plan under Kalanick was to flout the law and use VC money to subsidize until some future time when it would be a monopoly.
It assumed that the market would not react or it assumed that the VCs would keep funneling cash to keep it going.
Uber's business "model" always was unsustainable and the IPO and subsequent drop is entirely realistic as people realize that.
Uber Eats and some airy-fairy driverless vehicle models will not sustain it.
Currently Uber does not fund its vehicles, how does it think that the capital cost of running a driverless taxi fleet in a city will somehow be cheaper than the current cost of driver+car?
Uber doesn't have the capital to actually replace its current business model with one that is capital intensive and it will be eaten alive by existing fleet logistics and car manufacturers. It has no distinct advantage when operating a driverless fleet than Fedex or UPS or the equivalent operators.
This is unfortunate for many of the rank and file Uber employees but it’s good news for the stock market in general. It’s showing we’re not in a tech bubble and companies are still going to be valued based on how strong their business case is.
I've never understood why so many people were/are so bullish on Uber. I understand that ride hailing is a big deal, but it doesn't feel like it's that hard to launch a new ride hailing company.
I'm basing that opinion on what I've seen in my city. When Uber and Lyft left Austin, there were lots of alternatives that had existed or popped up to fill the space.
Aside from brand recognition, what does Uber have that the others don't?
> When Uber and Lyft left Austin, there were lots of alternatives that had existed or popped up to fill the space.
I tried to use one or two of those alternatives. Setup was a pain and I ended up taking a cab. I have at least one coworker who couldn't get a ride because he was in South Austin.
Additionally. if your company is only in one city, visitors have to know about, install, and setup a new app just so they can use you; it's just as easy for them to take a cab. Last time I needed a ride in DC, I used the Lyft app that was already on my phone. There was no friction in being in a different city.
Maybe there was a local alternative in DC, but who's going to look up local ride sharing companies and install yet another app when the app they already use at home already works? Even hailing a cab is easier than installing a new app for one or two rides while you're in a new city.
Really? I’ve mentioned it on here before but I used Fasten as a rider pretty religiously in Austin whenever Uber and Lyft left and it was just as easy to set up and hail rides as with Uber and Lyft. I switched back to Lyft when they came back only because the rides subsidized by VC money ended up being cheaper but if they were same price I would happily switch back to some other software.
Regarding your second point whenever I travel internationally one of the first things I do before traveling is to search for rideshare <cityName> on the internet. Whatever pops up I just download that app and set up my payment before I even get there so I can seamlessly hail rides. Often there is a thread on TripAdvisor waiting for me that compares the options.
I think Fasten declined my card. I then tried FARE, but it wasn't working either for some reason, and I was in a hurry, so instead got a cab instead (which I paid for with the card Fasten didn't like).
I hadn't expected to be in DC--My connecting flight was cancelled, so I needed a ride to the bus station. But I think if it had been planned, I would have Googled "is Lyft in DC?" and seen that I was all set.
Maybe I could save a few bucks by installing an alternative service, but it wasn't worth it to me to bother. (On the other hand, my price insensitivity is largely because I only take a Lyft/Uber about six times a year, so they might lose heavy users more quickly.)
Uber and Lyft have "network effects"? How? Explain that.
I couldn't tell you what car sharing service any of my friends use.
When I was in Malta earlier this year, there was no Uber. I downloaded an app called Taxify while sitting at a cafe, and called a car from it. It's not a huge barrier to download and install another app, even when trying to call a car.
> Uber and Lyft have "network effects"?
> I couldn't tell you what car sharing service any of my friends use.
It doesn't matter if you know who uses it. It only matters that there are. People are more willing to drive for it if there are plenty of users. If there are more drivers, there's more likely to be one nearby when you request a ride, so service is better. Better service makes for more riders. More riders makes it more worthwhile to be a driver. Positive feedback loop based on network size = network effect.
> I downloaded an app called Taxify while sitting at a cafe, and called a car from it. It's not a huge barrier to download and install another app, even when trying to call a car.
You know what's even less of a barrier? Not having to download and install another app.
Maybe it's not a huge barrier to you, but you're a single data point. You're talking to a second data point that's telling you that if I have a ride-hailing app on my phone that works, I will choose it before I install another app, every time.
My belief is that most people will take the path of least resistance, just like I do. How confident are you that they won't?
Brand recognition is huge. It's easy on HN to abstract this away as a simple scheme, but your customers are entrusting their lives. Lyft and uber initially had to pay out of pocket hourly wages to get drivers on board. Yes you can pretty much have insurance a car and a simple app and recreate the service but there's much more in it for anyone but big players. And why would they try jumping in at this point?
I don't think brand recognition is huge. In my city I've seen people jump from Uber to Grab to GoJek in the space of 3 years as each new entrant slashes to win market share. No one has had any trouble switching.
Ease of competition aside, I still think Uber is a massive bubble. Ride-hailing is of dubious actual utility, it's been causing traffic problems (and has been getting regulated accordingly), it has ethical problems with regards to employment (and faces constant threat of regulation from that angle too), and above all else, it's clear at this point that it will never be profitable while it relies on human drivers.
Investing in it is basically a hail-mary that we'll get fully autonomous vehicles within the next couple of years, and even in that best-case scenario Uber would be a strong-but-not-world-eating company (the traffic problems would still exist, and operating costs would skyrocket in the short-term before they go down). I can't fathom how it's worth nearly $10 billion dollars. I almost want to short it.
Is it though? Cabs have apps now. What makes them different? If the answer is the price, well, that price is unsustainable and denies thousands of people a living wage.
The answer isn't price (IMHO). It's the quality of service. I'm mostly talking about better cars, friendlier drivers, and rides that show up when they say they will.
I haven't used a cab app. Are the taxi apps similar to Uber and Lyft's where it identifies the car and driver and you can track the location of that car on a map? Do drivers and passengers rate each other?
Answer: it depends. When I lived in Malmö they had Taxa97 which was basically the same as Uber/Lyft. You can schedule rides, rate drivers, map view, and see the price of the ride before you take it. same with the taxi apps in Denmark. Other places have not as nice taxi apps. But in general taxis having to compete has generally brought them in line with U/L, at least in most of Europe.
The only major difference with the taxi apps is that the drivers are first party instead of third party so the companies have a perverse incentive to trust their drivers more than the riders. Of course, the more competition you have the less of this behavior you see.
Uber offers a single app that works in most major cities in the world, which is fantastic as a regular traveler.
Versus having to find, download, and set up a new app for every new city... maybe on roaming data or dodgy airport WiFi... when you've just flown in...
> Aside from brand recognition, what does Uber have that the others don't?
Brand recognition is no small thing. Hyper growth is what a lot of companies are going for, because that's the model that lead to amazon dominating the world. Ubering being a verb is very valuable.
Disagree. Everything is a trade off. You can either choose to aggressively grow at the expensive of burning cash or you can try to focus on becoming profitable. Many companies bet that the growth story is better than early profitability. Market seems to agree. Remember, even Amazon loses money on almost everything and their cash cow is AWS.
Here in brazil the most popular is Uber and 99 (which Didi, from China, is basically in charge).
The price on both is basically the same here in my city, but I still use Uber because one little thing: Uber has fixed price.
I know how much I'll pay for that ride. Simple as that.
Uber just raised $8 billion from the public markets, with a 2018 net operating loss of $3 billion, which gives it closer to 3 years if it doesn’t cut costs or increase revenue or raise more money, all of which it will presumably try to do. I’m bearish on Uber long term but I’d also be happy to take the other side of that bet.
Right? This is what I don't understand. Everyone keeps saying the only way they make money is with autonomous cars but they're not even close with being able to do that (probably 5 years, at a minimum, and that's in small select areas).
With such a high burn rate, what are they going to do? From everything I read they're not like Amazon where they can just "turn on" monetization unless they're going to hike up their prices.
So, why would anyone invest in this stock long term? What am I missing?
When autonomous cars arrive, Uber is toast. The only actually useful moat they have is experience in managing drivers. When that goes away, car manufacturers, or even private car owners, will just flood the streets just like scooters or bike rentals now.
It will just be a rather simple yet massive capital investment to put those cars on the streets, something that large, traditional companies with their far better financing terms will easily dominate.
This is my thinking as well. If you can manufacture cars you can make them cheaper than anyone could ever buy them. So, if I'm a car company, I'm buying someone (or building in house, whichever looks more likely to succeed; hell maybe even both!) who can handle making the cars drive themselves.
Then you have two businesses; you manufacture cars to sell to people and you have a service arm that handles an Uber / Taxi like service with driverless cars.
Anecdotal but I've definitely found alternative transit when the prices were too much. I'm not going to pay $20 more for a ride if I can just take the bus for 20 extra minutes transit time. There's a tradeoff.
Right but they haven't yet. Lyft is big in the US and most cities / towns in the US and across the globe have small start-ups doing similar ride sharing.
Does Uber have enough market to hike their prices yet? Will it before it runs out of money? If they're IPOing I feel like they have to think they can do this, I just don't get the how.
I used only Uber for probably 3+ years. On a recent business trip (where I wasn't even the one paying the bill in the end), Uber hit me with some ridiculous quote for a fare from Orlando airport to the convention hotel. That was the moment I downloaded Lyft, took the ride for a far more reasonable price and now I regularly cross-shop the two. Many drivers drive for both, so it's not even that different a wait time or experience.
You can shear a sheep many times, but skin them only once.
The public is an infinite supply of suckers though. Until they go bankrupt, their stock price doesn't have to reflect their financial position. People will buy it if they believe you can dump it to a greater fool later on.
> This is unfortunate for many of the rank and file Uber employees
The Uber employees now have access to the public markets to sell their stock options. Quite possibly, they had an option to sell at $45 a few weeks ago for the IPO.
Perhaps some employees "lost out" now that the price has dropped, but that's the breaks. Sometimes IPOs "pop", sometimes they "fall". But its strictly superior to have a market to sell your shares, rather than no market at all.
If that were true, a company losing as much as Uber wouldn’t have been able to IPO at all. I don’t see any case where Uber will be decently profitable. No self driving cars won’t save them.
Uber is valued a whole bunch above zero which is where that company will be when it runs out of money, which it will relatively soon at the rate it's going.
As an employee you typically don’t want your stock to skyrocket on the IPO. Most that do plummet as early investors sell and the employees (who have a lockup period preventing them from selling) watch their “gains” disappear. In my opinion, it’s better to have an accurately priced stock that grows at a healthy rate.
A cart before the horse. Who gets the most profit? The people who finance the project or the people who actually do the project? In a just world, would it be 50/50? Seems skewed... without the builders, there would no buildings.
What is your notion of "fair" and how do you go from there and arrive at that value? I mean, if the people who financed the project didn't invested a penny then the company would not have the means to get people to actually do the project.
The people who actually build the project get paid salary unlike investors who risk a lot of money and may never see a penny out of it if things go south which they well may.
probably not bankrupt, but they will basically become a small ride hailing company with high prices. This will result in their stock falling dramatically.
5-year put options on Uber right now would probably cost more than the price of the stock, which would put you at less than even odds. I don't think you can get options yet, though.
A 5-year short.....maybe? Will be interesting to see what the short interest and borrowing rate will be.
It's certainly disappointing for people who have been underpaid compared to industry salaries for the last several years based on their belief that their shares were worth more.
The base salaries are comparable but the share comp, which is generally close to half of comp, was based on valuations that didn't pan out. Now that it's been marked to market it doesn't look great. Keep in mind that other tech companies have doubled their share price or better in the last four years.
Uh, okay, but what you actually said was people were "underpaid compared to industry salaries."
When you accept equity, you accept risk. I don't think that there's a terribly bright future for Uber, but the stock hasn't been a catastrophe so far, and all the other big stocks will have disappointing times too.
In the context of the individual it is useless to speak of average outcomes. Over the lifetime of Uber all other tech stocks have had a huge run. If you had a choice to work at Nvidia and you worked at Uber instead you left $5 million on the table.
Morgan Stanley going to have to do a lot to stabilize the price over the coming days...
On Uber's side, they sold at their $45 mark. However, seems this may have been a down round vs their last private funding round ($74.1BN pre-money vs $76BN last year).
I'm confused by this comment. Is it the underwriter's job to intervene in the market after the initial sale? I thought they simply guaranteed that all the initial shares are sold.
Yes. The lead underwriter needs to stabilize the price post-IPO. When $unicorn_company IPOs, the underwriter actually sells more shares than the IPO company. If the price starts to drop below the originally listed price, the underwriter steps in to purchase these shares back at the IPO price to stabilize it.
It's generally an optics play - how bad would it look if you as a bank, who wanted to continue to offer IPOs, listed a company and its stock price plummeted below IPO on the first day - obviously you didn't do a great job at valuing the company and building an adequate order book.
Is there a measure of this? if you wanted to keep a price at a certain level, obviously you could buy endlessly at a current price while people sell at that price until you own everything.
But let’s also assume some large proportion of players are reactionary, tending to sell when the price drops and buy more when the price rises. If you could show a sufficient demand at price A, then that large block of people would not sell their holdings because the price does not decline beyond A.
Then, the economically rational actors have a dilemma because they believe the price should be B (where B < A), but powerful actors have shown it is unlikely to drop below A for all practical transaction volumes... it may make more sense to treat the true price as A.
I guess what I’m asking is how much money relative to market cap is required to make the market accept an inflated price _without_ actually trading on it and losing money?
disappointing? jesus, its been an hour. Relax your freaking noodles. What´s with everyone and instant gratification these days? The stock is still in range discovery...
I myself am bearish but sitting this one out because I have no idea what to make of it. One thing I know though, calling it disappointing 1 hour after open during a tightning range is beyond irresponsible. It´s flat out stupid and lacks any understanding of how markets work. The stock could literally pop bull 5 mins from now, or not. Either way I wish people would stop with this sensationalism.
Observing that there is no predictable "signal" in stock price changes only proves that whatever you're using to make predictions is unable to beat the market (the "efficient market hypothesis").
Stock prices are very obviously not completely random, in that they tend towards $0 when companies go bankrupt.
There is some randomness, or at least unpredictability, in stock prices. This is called "volatility". But the model operates on the very small tick-to-tick scale, not wether UBER is priced at $45 or $450.
The absolute confidence with which people provide post-hoc explanations is great. Often the data is available for those explanations before the market behaviour and with $10k you could make $500k on SPY but everyone can explain after the fact but no one can predict.
Well, if it's actually possible to read what stars and their relative positions mean for specific people based on when/where they were born - to understand large holistic patterns - then perhaps there are market gurus who have developed the same knowledge, skill, understanding of the larger picture - an intuition developed perhaps trusting your feelings. And yes, the majority are weighted towards being "sheep" who are in the mode of being indoctrinated - following the crowd..
They are referencing the opening price of the stock, not where it currently is. I would argue that for an IPO the initial opening price is important since the spread between the offering price and opening price is often an indicator of the quality of the IPO.
legit/dumb question.
Math does not add for me on the '$82.4B valuation', they are selling 180 millon shares at $45 which is $8.1B what is the remaining 82.4b - 8.1b = 74.3b value come from????? it said:
"Uber had raised $28.5 billion as a private company from no less than 166 different backers, with its last valuation in the region of $75 billion. The $82.4 billion valuation that it finally settled on for the IPO (selling 180 million shares at $45/share)"
So it means that when they raised the 28.5b privately it went to 75b valuation????
please explain, thanks in advance...
The market cap (valuation) is the value of one share times the number of outstanding shares (those part of the IPO but also all the existing ones). $8B is the amount of capital raised during the IPO.
but when you buy a share, you are part of only the 8B thats being raised with the other 180 million shares, or do you have a small part of the whole 80~b valuation?
There are 80 billion dollars worth of shares that exist. However only 8 billion of those shares were released for the public markets. The remaining 72 billion dollars worth of shares are held outside of the public markets (insiders, vcs, the company itself, etc.)
Till such time those 72b shares do not become public, are these technically still referred to as options? Also, for ex-uber employees who still own shares, how does one restrict them to not sell those in the public market assuming they are part of the 72b or will they only be part of the 8b?
Those 180m shares would represent ~10% of the company. The rest are either locked up and are not allowed to be sold by employees or certain investors for a certain period* or are held by the IPOing company itself to sell off at a later date, depending on demand.
* This is common in IPOs or other events (eg leading up to earnings announcements). The thinking is that if everybody dumped the stock at once, it'd depress the price. It's also common to prevent insider trading. There are a lot of employees who are probably waiting nervously for the blackout period to expire.
but again, market cap is the full value of public shares available, how can we now that only 10% of uber's shares are public and 90% privately? or how can we know how many public shares does apple offer and how many are private?
They're not listing all ownership of the company on the exchange, only a piece of it. There's still other, non-publicly-traded ownership valued at the rest of the 72 billion.
That's understandable, but for the average non-professional buyer, it's not fair to sell the idea of a '80b company', because it's only that 10% that you guys are saying.
thanks for your response!
how much it raised against only matter to figure out how much the VC will pay for the shares. by your numbers, it appear that uber convinced investors to pay $30b for 24% of the company. which now, might only be worth $8b... (taking all numbers from your comment)
Tech crunch's new close to home page button is a daring move
I pressed it to see what would happen and then decided not to read the article
I came their to read the news not to be sold more news.
Put is still a bad word because it has a connotation for options trading. (put options vs call options).
Maybe "to bet on a short position" is the best phrasing? "Put", "Call", and "Cover" all have precise meanings in the financial word. "Bet" is ambiguous enough that its kinda clear in this case.
I didn't say that I had shorted them yet, simply that I see no hope for Uber (or Lyft for that matter). Of course with the recent inversion of the yield curve, I'm pretty bearish on the whole market and likely to get out for a year or two as I did in 2007/8/9.
Meh. Bought shares in Zoom. They’re actually profitable.
Yes, yes, I know. This kind of thinking would have me not investing in an Amazon back in the day because they weren't profitable... but they weren't also losing almost as much as they were making in revenue either... and were actually selling a tangible good to prove out a business plan of basically world domination... so yeah I'm happy with my shares of Zoom.
Uber is currently worth more than Stripe, Spotify and Dropbox combined. I'd easily rather own those 3 outright than Uber. Wonder what the market knows that I'm missing.
Unprofitable companies are the only ones that really benefit from IPOs.
An IPO is basically a way for the company to raise money, but tis time straight from the public. Usually when it gets harder and harder for them to attract private investors. The IPO listing basically guarantees that they won't take the public's billions and run.
Successful companies with perfect cash flows (think of Github, Valve, IKEA) always try to remain private. Because they have nothing to gain by raising more money. They can give their employees good bonuses and maintain control of the company.
This is by design. In Silicon Valley we are obsessed with them because they are the only meaningful exit for common employees (take the money and run mentality). The rest of the world doesn't care much because they see them for what they are.
Of course. Startup employees do not know they can sell their 'private' stock already, today. However, they need permissions to do so from the company's board (their answer will be NO. Here, saved you from asking. Or maybe they will offer to buy back the stock with shitty terms), and can only sell them to an accredited investor and not random people/public.
Many companies would be ran better if they remained private (think of Facebook, which now has investor pressure to increase the price, which results in careless decisions about data handling, privacy etc).
This is incorrect. There are lots of cases where profitable companies want to IPO. Specifically the public markets are where you go when you need to raise money at significant levels. Nowadays this happens less often as their are bigger and bigger private investors (so you can raise billions in private markets). However there is still a point at which you may need to go public for fundraising.
You are making a mistaken assumption that only unprofitable companies need to fundraise, there are lots of profitable companies that want to raise capital to fund future growth (and their current cash flows aren’t enough).
Also I am very surprised that you named Github as a well run private company. As far I know, they were definitely not profitable (their spend was crazy) which is part of the reason the board took the acquisition offer from Microsoft. I really don’t think they are a good example of a well run private company.
You are correct that only companies that want capital IPO but that is by definition as an IPO is a capital raise. I believe that direct listing is an exception to this.
You are correct. There are many cases where fundraising for successful companies is needed. From liquidity, to gathering funds to fuel new ventures. Acquiring competitors, etc.
My assumption was that troubled ones also need it. So we should not be surprised that see so many controversial IPO listings recently.
> Nowadays this happens less often as there are bigger and bigger private investors (so you can raise billions in private markets)
Arguably, the reason IPOs happen less now than 20 years ago is because of the increase in regulatory requirements (particularly in the US), and the increase in available funding is a result of that.
This is only true in general for tech companies because they tend to be "capital light"-- they don't require a lot of traditional capital assets such as factories and warehouses. Generally, the only tech companies which require a lot of capital are the ones that are burning cash and need to replenish their coffers. But IPOs can greatly help jump-start the growth of more traditional companies which are often constrained by lack of cash as they grow sales organically, even if they are quite profitable on a net income basis. This allows these companies to open new plants and stores and to hire people to develop new products. As much as tech increasingly dominates the economy, it's far from the only industry that matters.
They do both. It's relatively rare for a company to IPO without raising fresh capital for the company. There are however often "secondary" share sales where only "selling shareholders" (rather than the company) receive the proceeds.
> It's relatively rare for a company to IPO without raising fresh capital for the company.
An IPO without raising new capital would make it more difficult to answer what every buyer should ask: "why are they so eager to sell?" It's a variation of plausible deniability.
It's what Spotify did, I think it's a decent question but it also allows for liquidity, especially since it's such a big part of comp it's not unreasonable to list
I was reading your comment and nodding until this part:
>think of Facebook, which now has investor pressure to increase the price, which results in careless decisions about data handling, privacy etc
Trying to frame FB as a "bunch good kids under pressure" is a monumental mistake. Data has always been their business, selling ads and don't giving two shits about security is part of their DNA
Facebook voting rights are in the hands of their dear-leader and no amount of investor pressure has direct impact on the decisions made by the company.
> This is because of Facebook's dual-class share structure. Class B shares have 10 times the voting power of class A shares, and it just so happens that Zuckerberg owns more than 75% of class B stock. It means he has more than half of the voting power at Facebook.
It's not that black and white. A lot of profitable companies IPO to fuel aggressive expansion in new markets which would otherwise not be possible and could harm them in the future. Google was profitable when they IPOd https://www.sec.gov/Archives/edgar/data/1288776/000119312504...
>think of Facebook, which now has investor pressure to increase the price, which results in careless decisions about data handling, privacy etc
This doesn’t follow at all. Zuck still has control and they were careless before being public. I would suggest being public is the only thing that puts them in the spotlight for their shitty practices.
Meh, they say invest in companies who make products you use. I use the shit out of Uber and I don't plan on stopping even if the price goes up a bit. Now, I'm upper middle class, and I understand this isn't everyone's mindset, so I have no idea how the rest of the world feels.
However, there are locatios, like my crappy hometown where I grew up not so fortunate circumstances, where hailing a cab simply wasn't an option. If you want to have fun at a bar, you're driving home drunk.
Bottom line, I believe in this product and I only see it growing in importance - regardless of who is at the helm. That's my gut feel, and that's why I bought in a little today.
Do they actually say that? You should only invest in companies you understand, and being a user if the product helps with that, but that's a metric for weeding out companies, not building a portfolio (i.e. if you dont understand them dont invest, but if you do it doesnt mean you should). The only real metric for investing is if you believe the expected value of the asset to you is greater than the market price. For example, I used moviepass, but I would never have invested in them because they were selling a dollar for 25 cents (which is why I used them...).
Who says to invest in companies who's products you use? That does not seem like great advice. You should invest in companies who are undervalued by the market in your opinion, not just because you like the product but because you think they have a good business around it.
Do you really think FB's problems are because of public investors? Zuck has never cared about user privacy. On the contrary, he has always display a "privacy is dead" mentality.
Silicon Valley is obsessed with them because it's the only place where hundreds or thousands of employees are given significant equity; many of them have $100k - $1 million in vested equity 1-3 years into the job. You don't want that frozen in a private company indefinitely. You want liquidity to use it and to diversify your holdings. This doesn't mean you think the company will fail and you just want to "take the money and run".
I assume an IPO is the easiest way foe private share holders to cash out. Then again, unless you are really asset heavy (manufacturing, etc..), I agree it might be a sign that less dumb money from the later rounds with dumber money. Or the company is burning cash faster than it is generated.
Case in point, when you cash flow positive and idealy profitable even banks would happily finance your expansions. So unless as a company you want to be growing really fast, I don't see the added benefit of an IPO other than cash flow issues. Add too that the increased scrutiny by the authorities and I d prefer to be private.
Of course the same argument could be made the other way round.
No offense, but of course IPOs benefit unprofitable companies. The entire point of an IPO is to raise capital to invest back into the company. Why would you ever have an IPO if you didn't have a plan for that cash, and why would you have an IPO if you had all the cash you needed?
Please don't post shallow dismissals and name-calling rants to HN. We're trying for better than that here, such as comments with information we can learn from.
it's all a matter of perspective, I think an $80 billion market cap for a company that loses billions of dollars every year with no end in sight is not that disappointing at all for those who can sell today
And there is the rub. Uber and lyft both loose money on every ride. Their whole strategy was to dominate sweeping markeshare by subsidizing rides, then cutting costs significantly with an autonomous network of driverless cars. AFAIK uber already failed in the second half, so there really is no plan right now with what to do with these massive expensive networks of drivers that both companies are now beholden to, other than shovel more money into the furnace and hope the lights stay on long enough for driverless cars to appear through a competitor who'd be willing to let uber use their tech. Even then I don't see margins being anything but razor thin.
I'd be polishing my resume if I worked at either of these companies.
- if it closes below $45(its IPO price) it will be the first time since 2008 that the happened for a major IPO
- TD Ameritrade executed more orders in the first 10 minutes of trading than they did for the first 2.5 hours with Lyft.
- Uber is 9% of all trading at TD Ameritrade, retail loves this stock,
- market is down today, which isn't helping Uber but its probably not much of a factor
- Kudos to Citadel, stock opened without a hitch and they seemed to nail the opening price,
- Boo to the underwriters(Morgan Stanley), who seemed to misjudge the market's appetite, important to note that major buyers at IPO, Fidelity and such already had exposure to Uber pre IPO so maybe this staying private longer but selling shares to public fudns had an effect?
https://news.yahoo.com/uber-employees-may-not-partying-15171...
- interesting piece on how Uber has grown its market cap in the past few years at the expense of its share price and how that effects later employees.
- later investors like the Saudi Public Investment Fund can’t be happy with the opening.
- from Bloomberg without comment...."Overheard trader on the floor: “That’s what you get when you don’t make a profit. If you don’t make money, people don’t want to buy you.”
- Biggest IPO since Facebook, that's something to be proud of!!
Date:
- June 4 is expiration of 25-day quiet period for analysts at underwriting banks. Expect bullish initiations on this date
- Nov. 6 expiration of Uber's IPO lockup. Large selling pressure expected to be asserted on this day as is typical for most IPO's.
Personal thought. It may be tough for employee's to not see this pop to say $65-$70 but in the long run its almost certainly better to open flat than to pull a "lyft" and get a first day pop that you price your options at in your head and to then have to cut that price by 40% before you get a chance to sell.
EDIT for comment below.