Ahead Of The Ipo: Uber Is Headed For A Crash

Picking upwards the torch Izzy K. gear upwards downwards when picking upwards the nappies, Naked Capitalism's Yves Smith writing at New York Magazine's Intelligencer column, Dec 4:

By steamrolling local taxi operations inward cities all over the footing too cultivating cheerleaders inward the concern press too amid Silicon Valley libertarians, Uber has managed to create an picture of inevitability too invincibility. But the fellowship just posted about other quarter of jaw-dropping losses — this fourth dimension over $1 billion, later $4.5 billion of losses inward 2017. How much is hype too how much is real?

The notion that Uber, the most highly valued mortal fellowship inward the world, is a textbook “bezzle” — John Kenneth Galbraith’s coinage for an investment swindle where the losses stimulate got yet to last recognized — is probable to come upwards every bit a surprise to its many satisfied customers. But every bit we’ll explain, relying on the extensive move of shipping goodness Hubert Horan, Uber’s investors stimulate got been buying your satisfaction inward the shape of massive subsidies of services. What has made Uber a goodness bargain for users makes it a lousy investment proposition. Uber has kept that recognition at bay via minimal too inconsistent fiscal disclosures combined amongst a relentless too then far effective public-relations motility depicting Uber every bit next the designing of digitally based start-ups whose large initial losses transformed into potent profits inward a few years.

Comparisons of Uber to other storied tech wunderkinder demo Uber is non on the same trajectory. No ultimately successful major engineering scientific discipline fellowship has been every bit deeply unprofitable for anywhere remotely every bit long every bit Uber has been. After ix years, Uber isn’t within hailing distance of making money too continues to bleed to a greater extent than blood-red ink than whatsoever start-up inward history. By contrast, Facebook too Amazon were solidly cash-flow positive yesteryear their 5th year.

The fact that this glorified local shipping fellowship continues to last a fiscal failure should come upwards every bit no surprise. What should last surprising is that the concern press even then parrots the fond promise of Uber’s management that the fellowship volition instruct populace inward 2019 at a target valuation of $120 billion. That’s good higher upwards its highest mortal part sale, at a valuation of $68 billion. And Uber’s management too underwriters volition no dubiety promise that the corking unwashed populace looks yesteryear the fact that to a greater extent than recently, SoftBank bought out insiders at a valuation of $48 billion, too its offering was oversubscribed. Why should novel money come upwards inward at a toll to a greater extent than than double where executives too employees were eager to instruct out?

Uber has never presented a illustration every bit to why it volition always last profitable, allow lonely earn an adequate furnish on capital. Investors are pinning their hopes on a successful IPO, which agency finding greater fools inward sufficient numbers.

Uber is a taxi fellowship amongst an app attached. It bears virtually no resemblance to network superstars it claims to emulate. The app is non technically daunting too and does non create a competitive barrier, every bit witnessed yesteryear the fact that many other players stimulate got copied it. Apps stimulate got been introduced for airlines, pizza delivery, too hundreds of other consumer services but stimulate got never generated market-share gains, much less tens of billions inward corporate value. They exercise non create network effects. Unlike Facebook or eBay, having to a greater extent than Uber users does non better the service.

Nor, later a for sure point, does adding to a greater extent than drivers. Uber does regularly claim that its app creates economies of scale for drivers — but for that to last the case, adding to a greater extent than drivers would stimulate got to exercise goodness drivers. It doesn’t. More drivers agency to a greater extent than contest for available jobs, which agency less utilization per driver. There is a trade-off betwixt capacity too utilization inward a shipping system, which you lot exercise non run across inward digital networks. The MUCH MORE, about of it quite brutal.

HT: naked capitalism