Uber opens at $42 per share
techcrunch.com
techcrunch.com
- 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.
http://archive.fortune.com/magazines/fortune/fortune_archive...
Sorry, first time that what happened?
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"?
Edit: thank you for the reply mr scarejunba!
It is correct. Object of the sentence. Common mnemonic: whom answered by him/them, who answered by he/they
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.
$45 was the IPO price, meant it will be the fist time since 2008 that a major IPO closed below its IPO price on the first day of trading.
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.
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.
The claim was that Uber might be the first major IPO to close below its IPO price that day.
If its not that uncommon then please show me the other major IPO's that traded below their IPO price on the day they went public.
I'll wait :)
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.
And you site an IPO form the 90's? sigh...
It's actually a big 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.
SV Unicorn hype aside, there's not a big moat around running a jitney cab company.
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.
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.
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.
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.
https://techcrunch.com/2019/04/05/morgan-stanley-which-is-un...
[0] https://www.bloomberg.com/opinion/articles/2019-05-07/lyft-s...
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.
https://www.forbes.com/sites/greatspeculations/2019/04/22/ub...
Doesn't make too much sense to conflate the two.
(I kid.)
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.
Logistics is a low margin winner-takes-all industry which is fairly well understood.
Love to see your working on how logistics is winner takes 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.
Just saying Facebook had 10x the user as Uber is meaningless.
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).
Or most likely the driver will agree to put the running gadget in the glove compartment for an off-the-app tip.
"Uber needs to access your microphone to communicate with the information screen"
"I can't communicate with the information screen Dave. It's voice sounds muffled. Have you done something with it?"
It feels like Uber is a really fucking long way from 33% operating margins.
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)
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.
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.
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.
Wouldn't someone have to have bought in at $45 and sold for lower in the same day? Why would anyone do this?
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.
Business Insider had a nice graph that put the valuation into context: https://markets.businessinsider.com/news/stocks/uber-technol...
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.
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.
"Taxi apps" definitely have network effects from the two sided market, though not as strong as a social network.
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.
If they are employees, Uber is thoroughly fucked.
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.
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.
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?
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.
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.
https://news.yahoo.com/uber-employees-may-not-partying-15171...
https://www.bloomberg.com/opinion/articles/2019-05-10/the-un...
Microsoft in 2016 was $51, $127 now
Facebook was $97, $189 now
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.
Taking these numbers at face value, I can't know if they account for it.
Still, Uber employees will be happy that they can finally sell those RSU awards (in six months when the lockup expires).
Over the past 3 years:
FB is up 60%
AAPL is up 98%
AMZN is up 261%
NFLX is up 363%
GOOG is up 60%
Uber most definitely grew over the last three years.
Uber was also somewhat unique among unicorns in uniformly blocking its employees from selling shares on the secondary markets.
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.
(source: turned down offer in 2016 because of employee-unfriendly terms)
https://techcrunch.com/2017/06/28/a-look-back-at-amazons-199...
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.
Edit: TBF, I was curious so I checked out AMZN's first year of trading: https://finance.yahoo.com/quote/AMZN/history?period1=8528832...
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.
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.
Edit: negative marginal costs -> negative marginal profits.
It’s why we use multiple metrics to evaluate a business, but it’s clear that Uber has large positive gross margins.
Ignoring all other expenses and saying that a company is a good business is ignoring reality.
I’m not just choosing a method that makes Uber look bad. They are not profitable or successful based on a legal GAAP definition of profitable.
If we just cherry pick numbers, we might as well think that WeWork’s made up metric of “community adjusted EBITDA” is valid.
https://news.crunchbase.com/news/wework-details-run-rate-rev...
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.
With Uber, what's their moat, so that when they raise prices to become profitable users don't just move away?
Lyft/local taxi companies/public transport, all have the infrastructure to provide the service that uber provides.
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.
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.
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.
Luckily for them: Cuomo and De Blasio have a running bet going to see who can bugger it up more completely.
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.
Lyft already did: http://nymag.com/intelligencer/2017/06/lyft-reinvents-the-bu...
Is Delta Airlines "public transportation"?
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.
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.
They kind of are. It’s just a matter of timing. They are rolling future profits, bankrolled by VC.
Uber is accumulating… uh. Microservices? Negative goodwill?
Seriously, this argument doesn't make sense to me? How can them spending more money help them make more because of taxes?
You should be already rich and structure your capital properly for this to work.
Makes a huge difference long term, as one is filled with payroll taxes and high rates, and the other is 15%.
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.
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.
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.
Remaining unprofitable is a part of maintaining the illusion that the company has huge upside in the future.
If they believe it just destroys the money it keeps, they will start demanding a payout.
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.
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%.
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.
It drives me crazy that so many people equivocate them.
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.
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?
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.
I think history has demonstrated that betting against Musk is not a wise choice.
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.
Uber burns money like it's going out if style and has no clear path to profitability.
Source: https://oversharing.substack.com/p/bird-raises-prices-to-tri...
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?
I assume that's what any company like this does eventually once they've captured enough of the market.
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.
You can shear a sheep many times, but skin them only once.
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.
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.
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?
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.
Uber and Lyft have network effects.
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 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.)
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.
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 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.
One of those leads to massive profit (eventually), and we'll see what happens with Uber.
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.
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?
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.
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...
Well then you'll really not fathom how it's worth $80 Billion. Which is it's actual market cap.
Uber is worth more than Ford and GM combined.
Uber is bullish, maybe that's why?
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.
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.
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.
their customer base will be richer//business people ready to pay higher sustainable prices for rides.
A 5-year short.....maybe? Will be interesting to see what the short interest and borrowing rate will be.
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).
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.
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?
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.
"Stocks were down today due to a sell-off"
Absolute cock and bull nonsense.
Stock drops 2% at open:
"Markets are falling because tariffs are 100% bearish signal. Sell it all!"
Stock rebounds 2% a minute later:
"Markets are up because tariffs can't stop the American economy."
https://en.wikipedia.org/wiki/Brownian_model_of_financial_ma...
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 employees are part of the 72 billion. All employees (current or ex) have a lock up period after the IPO where they are not allowed to sell.
* 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.
Eh, nevermind, IPOs don't have options chains yet...
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.
Uber will need to become more profitable so they will raise their prices and the users will be the ones who suffer from this IPO
What the fuck is this?
It's a mini cab firm with an app. Mini cab firms existed before Uber.
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 had actually something to win as you said because of all the free cash floating around and the fact that Uber is completely out of China.
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).
Just like taking investor money at anytime it can be a way to get extra cash to continue to build the company quickly.
The IPO system is wonky and there are bad examples but I don't think your rule makes sense.
A company can be profitable and still need more working capital to expand.
That being said, I don't know what to make of Uber, Lyft and WeWork (future) IPO's yet, but I am highly skeptical
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.
IPOs seem serve as an `exit` for private investors who bought in while the company was private?
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.
>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
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.
My assumption was that troubled ones also need it. So we should not be surprised that see so many controversial IPO listings recently.
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.
Define significant. I see softbank throwing billions at tech companies.
I hear you, but...
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.
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.
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".
> 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.
https://www.businessinsider.com/facebook-investors-will-vote...
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.