Author Topic: Uber filing for IPO  (Read 5761 times)

Spekulatius

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Uber filing for IPO
« on: April 12, 2019, 04:03:44 AM »
Largest privately subsidized public transportation company files for IPO:
https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm
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shalab

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Re: Uber filing for IPO
« Reply #1 on: April 12, 2019, 06:22:04 AM »
Good one to read.

91 million users of the platform, 3.9 million drivers, 15 million use uber eats.

This can really challenge/disrupt AMZN - it is only a matter of time before they can use advertising and deliver other products.

Broeb22

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Re: Uber filing for IPO
« Reply #2 on: April 12, 2019, 06:51:51 AM »
I would think after seeing so many tech-focused companies generate tremendous returns that were or perhaps still are money-losing, there would be fewer snide remarks about businesses that have clearly changed how a vast amount of people move, buy, sell, work, etc.

Whether valuation makes sense or competitive position is strong is always a worthy topic of discussion, but there are a lot of people on this board who have totally missed the boat (myself included) on how software business models generate losses up front but can become very profitable very fast when growth slows and maturity is more within sight.

In a world where "getting to scale" is realistic globally and the winner of that race earns the vast majority of the profits in an industry, it makes sense to spend aggressively to be that ultimate winner.

We have a lot of Malone fanboys on this board, myself included. What do you think he was doing when he wasn't generating any profit for decades but he guided investors towards EBITDA? He was saying "when I stop spending so much on cable and set-top boxes, we're going to have a business that gushes cash".

The tech companies are essentially saying the same thing, except now their sales, marketing, and R&D expenses are high relative to long-term plans. Please help me and others understand these companies that are changing all of our lives better so we can properly value them before they are large mature companies.


Jurgis

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Re: Uber filing for IPO
« Reply #3 on: April 12, 2019, 10:50:01 AM »
Broeb22: Just MHO, but you are probably better off looking at NFLX or STNE (or maybe PINS) than Uber. In fact, there are tons of other software companies that are expensive, growing and still probably better than Uber. I can post ticker soup if anyone is interested. (Some of the names have been discussed on CoBF, some maybe not).
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SHDL

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Re: Uber filing for IPO
« Reply #4 on: April 12, 2019, 12:44:15 PM »
Yeah, Iíd be very careful about buying this one.  To me it looks pretty terrible.

More generally, I must not be the only one who sees this recent wave of IPOs as yet another ominous sign.

Spekulatius

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Re: Uber filing for IPO
« Reply #5 on: April 12, 2019, 01:20:48 PM »
Yeah, Iíd be very careful about buying this one.  To me it looks pretty terrible.

More generally, I must not be the only one who sees this recent wave of IPOs as yet another ominous sign.
Lyft looks really terrible now compared to Uber. Uber doesnít look pretty either but shows economies of scale, while Lyft basically doesnít. I can see why Lyft is selling off, itís not just supply and demand of shares in that sector but inferior economics relative to Uber.
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SHDL

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Re: Uber filing for IPO
« Reply #6 on: April 12, 2019, 04:31:43 PM »
Yeah, Iíd be very careful about buying this one.  To me it looks pretty terrible.

More generally, I must not be the only one who sees this recent wave of IPOs as yet another ominous sign.
Lyft looks really terrible now compared to Uber. Uber doesnít look pretty either but shows economies of scale, while Lyft basically doesnít. I can see why Lyft is selling off, itís not just supply and demand of shares in that sector but inferior economics relative to Uber.

Right, although, if you look at the very recent quarterly numbers (2017 vs 2018) it looks like Uberís revenue growth is starting to stall whereas Lyftís is still going strong.  So maybe Lyft will catch up to some degree over time.

I see quite a few issues with this investment, but one of them is that ride sharing looks very much like a commodity in that the end product is undifferentiated and there are no switching costs.  (I literally have the Uber and Lyft apps installed side by side and I use whichever is cheaper.)  In an industry like that, head-to-head price competition is a very real possibility (even if itís a duopoly), and the numbers seem to indicate that that is exactly what is going on.  Not good if you are, say, a VC who provided the initial capital that got the business up and running Ö unless you manage to do an IPO at the right moment and sell your shares at a great price.

That is not to say that the business canít evolve over time into something better (for investors), but my guess at the moment is that those who buy the stock at or near the IPO will likely end up just bailing out the insiders and early stage investors who didnít quite get what they were hoping for, namely monopolistic profits in a new disruptive industry.
« Last Edit: April 12, 2019, 04:59:36 PM by SHDL »

Cigarbutt

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Re: Uber filing for IPO
« Reply #7 on: April 12, 2019, 05:22:17 PM »
Yeah, Iíd be very careful about buying this one.  To me it looks pretty terrible.

More generally, I must not be the only one who sees this recent wave of IPOs as yet another ominous sign.

Uber is out of my league at this point, I respect what Broeb22 said above for the tech/scale space, maybe this time is different and ominous is a strong word but I've followed biotech IPOs for the last 20 years+ and what is going on now feels really bizarre. It feels like the casino has fudged the odds in their direction?

It appears that being unprofitable is seen as a positive attribute.
https://www.recode.net/2019/3/6/18249997/lyft-uber-ipo-public-profit
https://www.recode.net/2019/3/21/18274843/unprofitable-tech-unicorn-ipo-stock-market-profit

Anyways, it looks like Uber timed their IPO in relation to their adjusted cashflow measures reaching some significant milestones soon but the call for funds also happens in an environment when investors really want to share the ride.

Spekulatius

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Re: Uber filing for IPO
« Reply #8 on: April 12, 2019, 06:29:31 PM »
I would think after seeing so many tech-focused companies generate tremendous returns that were or perhaps still are money-losing, there would be fewer snide remarks about businesses that have clearly changed how a vast amount of people move, buy, sell, work, etc.

Whether valuation makes sense or competitive position is strong is always a worthy topic of discussion, but there are a lot of people on this board who have totally missed the boat (myself included) on how software business models generate losses up front but can become very profitable very fast when growth slows and maturity is more within sight.

In a world where "getting to scale" is realistic globally and the winner of that race earns the vast majority of the profits in an industry, it makes sense to spend aggressively to be that ultimate winner.

We have a lot of Malone fanboys on this board, myself included. What do you think he was doing when he wasn't generating any profit for decades but he guided investors towards EBITDA? He was saying "when I stop spending so much on cable and set-top boxes, we're going to have a business that gushes cash".

The tech companies are essentially saying the same thing, except now their sales, marketing, and R&D expenses are high relative to long-term plans. Please help me and others understand these companies that are changing all of our lives better so we can properly value them before they are large mature companies.

The SAAS model does not apply here, because for a customer, there is virtually no switching cost. One can use Uber and I can use a competitor 30 min later without issues. These business are great for the customer, but it remains to be seen what the ultimate profitability will look like.
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Broeb22

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Re: Uber filing for IPO
« Reply #9 on: April 12, 2019, 07:42:54 PM »
By no means am I saying UBER is attractive as a stock, but I have been guilty of dismissing too many companies out of hand because the FCF yield wasnít at least high single digits.

We have seen many companies at this point create massive equity value while generating relatively minimal cumulative cash flow. CRM, AMZN, NFLX come to mind but there are certainly others. The companies going public these days are not fly by night companies of the late 90ís but real businesses with millions of paying customers.

Essentially, all Iím saying is I am trying to be open-minded about these companies and being aware of my (our?)bias for a preference for assets cash flowing now vs. assets cash flowing in the future (but creating massive value along the way).

Regarding the minimal switching costs and competitive dynamics driving down profits, sure there are minimal switching costs, but you still have only two real options. What happens if you try Uber, are dissatisfied, try Lyft, are dissatisfied? Are you really going to call a taxi service or use whatever taxi app there is and wait 30 minutes for your ride?

The end state for this market is still a duopoly (or maybe even monopoly), a market structure that usually generates rational pricing over time. Given the scale at stake and the benefits to scale/density in tech/route-based businesses, it wouldnít be surprising for Uber and Lyft to duke it out for market share. Eventually, which is whatís important if weíre truly thinking long-term, rational pricing will probably prevail. How many duopolies donít end up with rational pricing?

Iím far more concerned that someone would get to self-driving cars before Uber and Lyft can, and push them out of the market by offering a superior product (autonomous driving) at lower cost (no labor, better safety). I worry these companies are kind of a stepping stone to something even better.