Hubert Horan: Can Uber Ever Deliver? Part Nineteen: Uber’s IPO Prospectus Overstates Its 2018 Profit Improvement by $5 Billion
By Hubert Horan, who has 40 years of experience in the management and regulation of transportation companies (primarily airlines). Horan has no financial links with any urban car service industry competitors, investors or regulators, or any firms that work on behalf of industry participants
Uber released its S-1, its IPO filing with the Securities and Exchange Commission, on April 11th.[1] Press reports indicate Uber is seeking to raise $10 billion and achieve a valuation close to $100 billion. To succeed, investors will need to believe that despite losing roughly $14 billion in the last four years, Uber not only warrants a current valuation that would make it the second most valuable startup IPO in US history (after Facebook) and the second most valuable publicly traded transportation company in the world (after Union Pacific), but that its stock will continue to steadily appreciate once it becomes publicly traded....MUCH MORE
Uber’s biggest IPO challenges are to convince potential investors that it has already made substantial progress towards reversing its recent massive losses, and that its businesses have the ability to generate strong, sustainable profits.
Uber’s S-1 not only fails to present any credible evidence about future potential profits, but its presentation of historical results is designed to mislead potential investors about recent improvements that did not actually occur.
Nobody believes Uber’s claim that it earned a billion dollar profit in 2018
Uber’s S-1 claims that it achieved a $5 billion profit improvement in 2018, moving from a $4.03 billion loss in 2017 to a $997 profit in 2018. Uber’s efforts to manufacture artificial accounting profits that gullible outsiders might not immediately see through first surfaced with the release of its first quarter 2018 results, when a claimed $3003m gain from the sale of its failed Southeast Asia operations to Grab converted a huge loss into a small profit. A fair number of the reporters actively following Uber saw through the original first quarter ambit [2] and the vast majority of reporters following the S-1 ignored the reported $5 billion improvement.
Many current reports have still misreported the 2018 profitability of Uber’s ongoing operations in ways that incorrectly showed meaningful year-over-year profit improvement [3] because Uber was deliberately making it difficult for outsiders to understand those numbers. But most realized that any reported profitability numbers needed to exclude items such as the Grab gain.
All previously released Uber P&L data were based on actual worldwide operations.[4] Uber decided to recast all of its S-1 financial reporting to segregate Uber decided to re-do its accounting to segregate results from countries (China, Russia, Southeast Asia) where it failed dismally and sold its remaining operations to the dominant local company. This would be reasonable if done transparently and consistently, as it might help potential IPO investors better understand the past performance and future profit potential of the parts of the business that haven’t failed.
If Uber’s intention were to help these investors, the S-1 would have included clear warnings that the 2018 “improvements” were the result of the decisions to abandon these failed markets. Uber didn’t do that, because they are trying to give outsiders the impression that profitability is on a strong upward trajectory.
Uber overstated its 2018 profit improvement of its ongoing operations by $5 billion; ongoing operations lost the same $3.5 billion that they had in 2017.
Uber’s S-1 P&L says that “Net Income From Continuing Operations” improved by roughly $5 billion, from a $4 billion loss in 2017 to a $987 profit in 2018. This is not true; the actual net income from continuing operations in 2018 was negative $3.5 billion, virtually the same as 2017’s result. Uber mischaracterized $5 billion in gains from discontinued operations as gains from continuing operations in order to mislead IPO investors into thinking that the performance of its ongoing business was rapidly improving.....
For folks just getting into the story, here's a thumbnail sketch of the last five years of Uber, Uber, Uber, by way of a couple geniuses and then stolen by yours truly.
September 2018
Uber's Long Road To Profitability: eBikes, That's The Ticket !!
Can't Stop Laughing.
Fans of the never-ending story may remember the chronology of Uber's pivots put together by a genius commenter at J. Bradford Delong's blog back in early 2017:
Uber's Master Plan, The Short Version
Readers who have followed the FT's Izabella Kaminska, and to a lesser extent ourselves, on Uber over the last four years know the evolution of Uber's pitch. However, among all opiners, this comment at Brad DeLong's Grasping Reality with Both Hands blog is as succinct as it gets. I am envious.
(in our and Ms. Kaminska's defense, we were doing it in real time but still...)
HT up front to Izabella's confrère Matthew Klein who's link set up the chain to naked capitalism and then DeLong's commenter, Mr. Slee.
– Uber has a nice business as a status product (Uber Black Car ~ 2010)
– Uber Black may not be profitable, but Uber will displace taxis and be hugely profitable because of technology-driven efficiencies (UberX: 2014-2015)
– UberX may not be profitable, but UberPool will lead to new efficiencies in mass transit (2015-2016)
– UberX may not be profitable, but Uber is a logistics company and will rewrite the rules of delivery (UberEats, various speculative stories, 2013-2015)
– UberPool may not be profitable, but when Uber displaces car ownership the scale of the market will make it profitable (2016)
– Uber with drivers may not be profitable, but driverless cars will make Uber profitable (2014-)
Sweet.– Driverless cars may not be profitable, but Uber is looking into flying vehicles (2016)The Uber makes losses while maintaining credibility for bringing “the future” in some form or other.
And just so you know, we were on top of the flying vehicles:
Uber to Challenge Airbus in the Autonomous Electric Flying Taxi Business
As the only analysts covering theHere's the latest from SmartCitiesDive:nascentas-yet-theoretical autonomous electric flying taxi market we intend to be the the go-to source for all things autonomous electric flying taxi and/or theoretical....
Uber CEO: Moving business beyond ride-sharing is 'very valuable'
