From Musings on Markets, April 15:
Uber's Coming out Party: Personal Mobility Pioneer or Car Service on Steroids?
After Lyft’s IPO on March 29, 2019, it was only a matter of time before
Uber threw its hat in the public market ring, and on Friday, April 12,
2019, the company filed its prospectus. It is the first time that this
company, which has been in the news more frequently in the last few
years than almost any publicly traded company, has opened its books for
investors, journalists and curiosity seekers. As someone who has valued
Uber with the tidbits of information that have hitherto been available
about the company, mostly leaked and unofficial, I was interested in
seeing how much my perspective would change, when confronted with a
fuller accounting of its performance.
Backing up!
To get a sense of where Uber stands now, just ahead of its IPO, I
started with the prospectus,
which weighing in at 285 pages, not counting appendices, and filled
with pages of details, can be daunting. It is a testimonial to how
information disclosure requirements have had the perverse consequence of
making the disclosures useless, by drowning investors in data and
meaningless legalese. I know that there are many who have latched on to
the statement that "we may not achieve profitability" that Uber makes in
the prospectus (on page 27) as an indication of its worthlessness, but I
view it more as evidence that lawyers should never be allowed to write
about investing risk.
Uber's Business
Just as Lyft did everything it could, in its prospectus, to relabel
itself as a transportation services (not just car services) company,
Uber's catchword, repeatedly multiple times in its prospectus, is that
it is a personal mobility business, with the tantalizing follow
up that its total market could be as large as $2 trillion, if you count
the cost of all money spent on transportation (cars, public transit
etc.)
 |
| Uber Prospectus: Page 11 |
While the cynic in me pushes me back on this over reach (I am surprised
that they did not include the calories burnt by the most common
transportation mode on the face of the earth, which is walking from
point A to point B, as part of the total market), I understand why both
Lyft and Uber have to relabel themselves as more than car service
companies. Big market stories generally yield higher valuation and
pricing than small market stories!
The Operating History
Uber went through some major restructuring in the three years leading
into the IPO, as it exited cash burning investments in China (settling
for a 20% stake in Didi), South East Asia (receiving a 23.2% share of
Grab) and Russia (with 38% of Yandex Taxi the prize received for that
exit). It is thus not surprising that there are large distortions in the
financial statements during the last three years, with losses in the
billions flowing from these divestitures. In the last few weeks, Uber
announced a major acquisition, spending $3.1 billion to acquire Careem, a
Middle Eastern ride sharing firm. Taking the company at its word, i.e.,
that the large divestiture-related losses are truly
divestiture-related, let’s start by tracing the growth of Uber in the
parts of the world where it had continuing operations in 2016, 2017 and
2018:
 |
| Uber Prospectus: Page 21 |
The numbers in this table are the strongest backing for Uber’s growth
story, with gross billings, net revenues, riders and rides all
increasing strongly between 2016 and 2018. That good news on growing
operations has to be tempered by the recognition that Uber has been
unable to make money, as the table below indicates:...
MUCH MORE
