Uber and Lyft
(Dan here…Lifted from comments at Spencer’s SP 500 PE)
It is strike day for Lyft and Uber. Uber’s IPO is estimated to be at $90 billion which strikes me as way overpriced. Why? Net revenue is only $7.9 billion whereas operating costs are $12 billion for the latest reported year. Their net revenue is 7.5 times that of Lyft. Lyft’s operating costs turn out to be 170% of its net revenues.
Interestingly both companies have net revenues that are 23% of gross billing. Let’s put it this way. If your driver charges you $10 for a ride, he keeps only $7.70 even though its is his car, his gasoline, and he is an independent contractor getting no wages or fringe benefits.
If this strike works – the financials for these two companies will go from dreadful to just plain absurd.
Lyft had its IPO on March 1 this year. Suppose you had purchased 100 shares:
You’d be out $2300 by now. Keep this up and you can be a great business guru like Donald Trump was!
Uber has been a long running topic at Naked Capitalism featuring a great series by Hubert Horan a transportation analyst. Latest segment #19 is here: https://www.nakedcapitalism.com/2019/04/hubert-horan-can-uber-ever-deliver-part-nineteen-ubers-ipo-prospectus-overstates-its-2018-profit-improvement-by-5-billion.html
The only money dumber than Uber/Lyft my be the TSLA/Musk believers.
Listening to an article yesterday, Uber cut the driver per mile share from $0.80 to $0.60. That’s the issue for the drivers.
If the news I listened to this morning was right – only 0.5% of the drivers turned off their apps and joined the strike. That is not a vigorous union protest.
Amateur Socialist – thanks for that actual link which ripped Uber’s misleading 2018 financials. I did not even know they were released. My comments were on the 2017 financials, which were dreadful but at least not misleading.
Yahoo/finance does a decent job of showing the income statements for LYFT for not only 2016 and 2017 but also 2018:
Net revenues doubled from 2017 to 2018. Operating losses rose to $975 million for 2018. So why is anyone buying this stock even at $55 a share?
There were two main reasons that the taxi industry was heavily regulated in NYC: control of congestion and letting drivers earn a living. This worked for a while, but then the regulations were changed to turn medallions from license to operate into financial assets. Once they became financial assets, there was no way to adjust the supply of taxis,
Uber and its ilk ended that. The value of medallions crashed. There was a time in the late 1970s where a taxi medallion cost less than a seat on the NYSE. That time is over. They also brought back the problems of congestion and drivers making a living.
One obvious solution is to return to a system of licenses to operate, but developing a municipal dispatch system. This is effectively what NYC has done by limiting the number of “ride share” drivers. I can imagine Uber and its ilk morphing into something like Consolidated Edison or Brooklyn Union Gas, basically operating as heavily regulated monopolies and being excellent “widows and orphans” stocks paying reasonable, reliable dividends. Of course, their current stock prices will be a lot lower, but that is based on a combination of hype and fantasy.
Regulated under Utility and Common Carrier law.
Wow. $45/Share ipo to support $82B valuation. Will it close today over $50 or under $40? Place your bets!
In case it wasn’t clear I’m taking the under.
Amateur Socialist! If Uber’s stock follows the path of Lyft – in a couple of months the share price will be less than $30. Short sell this turkey.
And at 2:30 ET UBER is…. off $1. It’s a rush for the exits folks.
Should have mentioned in my earlier post: Volume: 145M
Keep those aisles clear there is a lot of unloading this pig.
Uber closed at $41.60. And even with this disappointing price – I think it is overvalued.
As Horan has explained in detail (the other 18 posts on Naked Capitalism go back years) the question isn’t actually whether Uber is overvalued; he makes a reasonable argument that absent the obvious fraud, Uber probably doesn’t have any value. There isn’t really any ‘secret sauce’ there that can be uniquely exploited to dominate this business forever.
There is probably no way to keep subsidizing rides for clients another 4 quarters. Unless you believe they are about to build out their own self driving fleet next year they are BK by 2020-2021 at the latest. And even a $10-20 share price is kind of a steep bet on something that won’t be there in time if it ever comes.
An interesting statistic here: Apparently 25% of Uber’s business comes from just 5 cities. New York, Los Angeles, San Francisco, London, and São Paulo.
Concentration means they are seriously vulnerable to disruption by repeated driver/client boycotts. Even if they weren’t going broke at $1B/yearly clip.