Sunday, March 11, 2018

"Strange Things at Uber Keep Getting Stranger"

Matt Levine peers through Uber's reality distortion field.

From Bloomberg View:

The ride-hailing company just creates its own financial reality.
This post originally appeared in Money Stuff.

I like to say that Uber Technologies Inc. is a large public company that happens to be private, but it's actually stranger than that. It is also a mature company that happens to be immature, a big stable company that happens to be hugely cash-flow-negative and locked in an existential battle for its future. Here's a story about how Uber is raising a $1.25 billion leveraged loan despite its negative $2.2 billion of earnings before interest, tax, depreciation and amortization last year:
And given Uber’s cash burn and annual loss, investors will probably be asked to assess the company by other metrics. One might be its blended valuation of $54 billion by a SoftBank Group Corp.-led investor group. That made it the biggest venture-backed technology enterprise without a stock listing. Management may also tout the $4.5 billion of cash that company holds on its balance sheet as of December 2017, according to documents seen by Bloomberg.
Now I am not a leveraged-loan investor but none of that sounds all that appealing? The $4.5 billion of cash is a fraction of what Uber has raised, and it covers about two years of negative Ebitda, meaning that if you lend money to Uber and it keeps going at this rate, it will run out of cash before your loan comes due. Equity investors at least get an indefinite-lived claim with, potentially, a lot of upside; lenders, in the best case, just get their money back with interest. The $54 billion equity valuation underneath the loans is not ... you know ... easily monetizable. But this is all just old-fashioned thinking; the reason that Uber is probably an attractive credit is not that it has positive cash flow or valuable assets, but that it is Uber. In the financial markets, Uber just creates its own reality.

By the way: "Another twist to Uber’s plan is that it’s pitching the debt directly to investors, bypassing the traditional route of using banks to fan the loan out to the lender group." You don't need banks to syndicate your loan if you are Uber. (Though "it does have Morgan Stanley acting as an adviser.") Spotify Technologies SA is doing a non-IPO IPO, and now Uber is doing a non-syndicated syndicated loan. I am not convinced that the big private tech companies are going to fully disintermediate the banks any time soon, but it is a bit of a trend....MORE
And, although he modestly doesn't mention it, Mr. Levine (and the FT's Izabella Kaminska) looked at another aspect of the Morgan Stanley—Uber nexus a couple years ago. We linked to both in:
"Uber Is Raising More Money From Rich People" (Al Gore and Snapchat do cameos)
And more recently (yesterday):
Uber Is Looking for Someone to Lend Them $1.25 Billion (£900m)