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Uber's IPO and prospectus

Uber's IPO looks like it'll be big -- but it's prospectus is a horror show...

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So Uber, the ride hailing app which definitely, absolutely, positivively does NOT employ any of its drivers, is expected to go public this Friday -- and it looks like it'll be big. The presumed price is $100 a share.

But a little light reading of the firm's prospectus, it doesn't look great. Here are a few highlights:

  1. Uber lost $3.0 billion in 2018 on $11.2 billion in revenue from its basic operations. It sold its interest in a couple of other ride-hailing firms, which enabled it to book a profit, but despite a tripling in revenue since 2016, its losses were essentially the same in both years.
  2. This paragraph (!!!): "The assumed initial public offering price of $_ per share is substantially higher than the net tangible book value per share of our outstanding common stock immediately after this offering. If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution."
  3. The company's own assessment of its tangible book value: “Our historical net tangible book value as of December 31, 2018 was $(7,620) million or $(0.02) per share.”
  4. As the business writer Doug Henwood points out, the word "reputation" appears 60 times in Uber's S1 filing. This is because of sexual harassment complaints, driver unrest, workplace bullying -- you name it!
  5. It's grand plan to automate its pesky freelancer/employee problem with autonomous self-driving cars is also a no-go apparently. From the filing: "Autonomous vehicle technologies involve significant risks and liabilities. We have conducted real-world testing of our autonomous vehicles, involving a trained driver in the driver’s seat monitoring operations while the vehicle is in autonomous mode. In March 2018, one of these test vehicles struck and killed a pedestrian in Tempe, Arizona. Following that incident, we voluntarily suspended real-world testing of our autonomous vehicles for several months in all markets where we were conducting real-world testing, which was a setback for our autonomous vehicle technology efforts."

So, my question is: Am I dumb and unable to see value here? Why on earth would someone invest in this? Uber is, by any measure, a bad business...



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07th May 2019 11:43

I think the idea is eventually they drive out the existing taxi's and ramp up the prices.

However if that happens, I imagine competitors will come and an nip at their heels. ie like they are doing to black cabs in London.

Moreover they have a significant tax risk re driver's status and VAT etc

Id not buy them, then again I thought Amazon was a rubbish business in the late 1990's as it lost money selling books. So my track record in stock picks is not good.

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to ireallyshouldknowthisbut
07th May 2019 12:01

Re Amazon, survivorship bias, you forget about all the other such offerings that are no more (my boring accountancy background possibly helped me miss most of them, but there were plenty of ways to lose money back then)

Key question re Uber, do they have a business so robust and with such barriers to entry that A N Other cannot readily come along and do things better? Frankly I am not sold they have a decent moat, so not for me.

That likely means everyone else will make a fortune on Uber but frankly I do not care, at my age if I am not comfortable with my investments I dump them, I am too long in the tooth to sustain substantial losses-not enough years left to recover from my mistakes.

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07th May 2019 13:00

DJKL wrote:

I am not sold they have a decent moat, so not for me.

I would tend to agree with that. The software is not particularly complex and there is no reason for their user base to be that sticky.

Amazon could easily take them out if they felt like it.

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to johnhemming
07th May 2019 13:13

I always somehow feel these days that newer business entities are just not built for the long haul, they seem to survive longer if lots of assets needing to be built up/deployed but if not they are often here today gone tomorrow- a bit like all the bars/restaurants etc which are flavour of the month for a few years then drop back into obscurity or like clients but on a bigger scale ,those with premises/assets go on year after year, those without seem to burst into existence, maybe burn bright for a short time and then the light goes out.

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07th May 2019 13:23

Premises don't always help as you can see from retail.

I am currently long substantially in UK Banks. A bit of resolution on the Brexit front and I think there is a good bit of value.

I do think the Buffett moat is a good indicator of long term value, however.

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By Maslins
07th May 2019 13:03

It's too high risk for me to invest...however, I can foresee a reasonable possibility of a future where Uber do amazingly well. Driverless cars will be a game changer.

With no driver to pay and the low cost of electricity (relative to petrol/diesel), the price of getting a cab can plummet. I can easily foresee it being sufficiently dramatic that car ownership will also plummet.

I don't see the number of journeys falling that much, but increasingly people will just use their smartphone to get a car to come collect them and take them wherever they want to go for peanuts. With thousands of such cars around, you'll never have to wait long at all.

People can opt for the "delux" experience of them being the sole passenger in the car, going directly between existing location and destination. Or they can go cheaper, accepting the fact they'll share the car, and it may go via a few other destinations on the way.

If Uber can nail that market, their net worth could become astronomical. However, there's a reasonable chance someone else will take the market instead.

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By Locutus
07th May 2019 13:55

Last week, I watched part of an impressive online presentation from Tesla about their autopilot driverless car system.

The latest driverless computer chip from March 2019 is apparently 21 times as powerful as its predecessor. Tesla also currently has around half a million (and rising) vehicles on the road gathering driver data and improving the software.

The CEO of Tesla, Elon Musk, believes full self driving will be ready in 2020 and that his company will even be operating a fleet of robo-taxis (being Tesla vehicles originally leased to customers, but returned to Tesla at the end of their lease period) shortly after 2020.

Elon is frequently unrealistically optimistic, but often ultimately correct. It wouldn't surprise me at all, if, within the next 5 years, driverless Tesla vehicles are making inroads into Uber's business model in some cities.

I think the future will increasingly be driverless. Uber and Lyft will need to embrace that in their medium to long term plans.

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to Locutus
07th May 2019 17:17

Driverless wont work until every existing car, human being, cat and everything else carries a sensor to stop you being run over. This makes it much much more workable than current systems depending on re-inventing the eye which fail from time to time.

Tech is already here, but I cant see governments in their messy decentralised manner every agreeing on a single universal sensor to be used by all manufacturers, and then insisting everyone puts on in their pockets.

Id be delighted to not drive back from the pub et al, and be much happier facing long journey if robo car did the driving.

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to ireallyshouldknowthisbut
07th May 2019 17:28

What a horrible thought, currently if driving I can invoke the driver's command that it is getting a bit busy etc, or I cannot hear the satnav, could the family all keep quiet, with a driverless car I will have no excuses to shut them all up.

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