Earlier this year I wrote on this site about the ridiculous Uber partial public float then about to occur on Wall Street, arguing that financially, although a great service, Uber is a dog destined to fail.
Nine months’ earlier when the partial float was first mooted, Uber executives talked of a capital valuation of US$120 billion. That’s serious money, even in Wall Street. In the event, the float went off, its share price recording a capital value of US$82 billion and a rare event on Wall Street, promptly crashed 8% within hours. Subsequently the original float price has fallen by a third.
Soon after Uber recorded a quarterly loss of US$8 billion, thereby eating up most of the capital it had raised.
Uber is doomed. Price‑cutting competitors are savaging its business.
But its principal flaw is it’s based on cheap labour which eats up 100% of its revenue. In short it can’t and never will be able make a profit and pay a dividend. For example, the US$8 billion quarterly loss was set against a gross income of US$5 billion.
So why is it still existing as a multi‑billion company as everyone knows it can’t survive, other than as a communal service organisation providing low-paid employment?
This is where the fun starts. Allegedly it’s been the biggest short‑selling target in stock exchange history. It’s estimated 75% of its shares are currently held by short‑sellers.
These are punters who know it will fail, pay a fee to borrow stock, sell the borrowed shares and wait for the price collapse, then return the borrowed physical shares by buying them at the collapsed price.
Common-sense says they should act now, buy in and take their profit. But if they all tried to buy simultaneously they’d drive the price sky‑high. Smart ones nevertheless, doubtless are dribbling them out and in the process inadvertently sustaining the ever dwindling share price. There may be others who borrowed for say 3 years, and will sit it out until it collapses completely, for a massive profit.
When plainly illogical propositions such as Uber are floated, and more to the point, at utterly irrational capital values, It’s a time-proven give-away of a bull market’s end.
Under mug share-holder (“donors” would be more accurate) pressure Uber has laid off nearly 1000 management staff since the float, to cut overhead. No matter for even if they had literally no management cost it’s impossible for Uber to make a profit.
As I wrote at the time, providing Uber rides is the equivalent of setting up shop world‑wide and offering to pay $3 for $2. As is the case with Uber services, such a shop would be well patronised but eventually – well you know the rest.
3 Comments
Every ride is subsidized by the wall street capitalists and silicon valley investment funds, so think of it as wealth distribution
Owning a near market monopoly created by network effects like Google, or Youtube or Spotify or Amazon or Trademe or Facebook or Microsoft or Adobe … is about the most valuable commodity in the world and worth making huge losses for 10-15 years for the longer term payback (like Google and Amazon did). Uber were betting on establishing that strangle-hold on rideshare. Seems they are failing with Lyft and others still surviving, so are groping around with their vast cash hoard to try and get some other market sewn up. Flying cars, autonomous cars, food delivery amongst them. Hasn’t worked for them, but someone is likely to establish quasi monopolies in these things are reap enormous profits.
… so what’s the income of an Uber driver (I.e. in NZ) and how many hours do they have to work for it? Could be fairly sound economically – especially if they’re driving Priuses. Those are good for the economy. Oh I mean the world.
I guess what’s good for the world isn’t always perfectly economically sensible, eh…?