
Uber Joins Lyft in Race to Tap Investors - mudil
https://www.wsj.com/articles/uber-lays-groundwork-for-ipo-1544231655
======
ChuckMcM
Now its all about the road show :-) Since it costs nothing, I'll put down my
predictions so that I can come back later and see how wrong/silly I was.

I predict that Uber won't meet their subscription goals during the road show
and be forced to push off their IPO until 2020 at least, and that Lyft will
make it through the gate but will come out with less than a 10% bump in price.

I'm basing that on an investor sentiment that Lyft is more of a 'pure play' in
the ride sharing market and Uber is a mix of several businesses which each
have their own risks and can pull the company down even if their core business
is ok.

Now to wait a year and see how well it ages, hopefully better than MacAfee's
bitcoin tweets! :-)

~~~
erikpukinskis
I’ve turned around a little on Uber and Lyft.

At first I thought Lyft was doomed because of network effect.

Then I thought they were both doomed because Tesla, Waymo et al will just do
an end-run around them with self-driving cars.

Then I thought maybe Uber would survive, if they can develop their own self
driving tech.

But now I think, self driving tech will be a market of its own... there will
always be a carmaker/software co wiling to sell vehicles and computers to
someone with deep pockets.

So that brings me back to Lyft and Uber both being viable strategically.

Under that lens though, Uber looks a little weird with all of its debt and
erratic behavior.

Both of them are acquisition targets for anyone who survives the EV/autonomous
vehicle production wars.

------
googlemike
For those saying this IPO is happening now due to market slowdown, Uber's CEO
has been speaking of a 2019 IPO for a while[1]. I am not an investment banker,
to me this seems far more pre-planned than a last minute rush before a heavy
correction, no?

For those who do know the space well, how far ahead would one be able to plan
to time this right to happen to coincide with the current trends in the
market?

[1] [https://www.wsj.com/articles/new-uber-ceo-says-company-
could...](https://www.wsj.com/articles/new-uber-ceo-says-company-could-go-
public-in-18-months-1504119090) , Aug 30, 2017

~~~
rayshan
Companies usually start to think and prep about IPOs 2 ~ 3 years out. The
actual IPO process takes 6 ~ 9 months. People have crammed the process into
just 3 months! I built a tool [1] to help startups assess IPO readiness. It's
kinda fun to run it against your own employer.

[1] [https://ipo-ready.com/](https://ipo-ready.com/)

~~~
gberger
What's the privacy policy on your tool? The data that I enter, do you have
access to it?

~~~
rayshan
Not at all, but you're welcome to share the results with us and get additional
help / advice. I won't sell you on how seriously we take security and privacy.
I built IPO Ready with IPO lawyers and let's just say they don't mess around.
Details are in the Terms of Use in the footer.

~~~
nihonde
IAAL. It’s odd that Orrick doesnt mention how the data submitted will be
handled. It’s not addressed in the Terms of Use, and there doesn’t seem to be
any privacy policy. Also, the fact that you side-stepped a very
straightforward question (“What will you do with my data?”) by citing the bona
fides of your lawyers is a red flag. Just saying...

~~~
estsauver
I mean, Orrick's name is generally enough for me. They're our lawyers, and
talking with any of their partners is like talking with the best engineer
you've ever worked with. They just pull apart whatever they're working with.

I mean, who knows, but their reputation is worth so much more than a privacy
policy that it's actually enough for me.

~~~
nihonde
As a former BigLaw lawyer, I find this attitude very misguided and mildly
depressing. I’ve worked with good lawyers and bad at firms with big brand
names. As firms consolidate further into thousands of lawyers under one name,
the variable quality of their advice only increases.

Anyway, even a junior attorney should know that answering the question “what
will we do with your data?” is table stakes for putting a form online,
especially one that is soliciting your private business information.

(Edited to clarify that even where privacy policy is not required, you still
should tell people what you’re going to do with their submissions.)

------
dman
I am calling a market top here with the recent flurry of plans to IPO. Market
has been shaky recently and I wonder if investors/founders are trying to get
out ahead of a complete meltdown.

~~~
tanilama
Exactly. If they are not getting out now, they might not exit ever.

~~~
kerng
An IPO is not something you do just at one day out of the blue. It needs a lot
of planning and paperwork. Uber has been planning this for for something like
a year, since their new CEO came on board. They even started showing their
finances and earnings since a while ago, which is not something a private
company has to do.

------
sethbannon
Just when you thought bay area housing pries couldn't get any crazier, Uber
files for IPO same week as Lyft.

~~~
creddit
The number of Lyft and Uber employees is minuscule compared to the size of the
housing market.

~~~
closeparen
In the 6 months from October 2017 to April 2017, the San Francisco housing
market was a couple thousand units, per the MLS [0]. Lyft and Uber each have
thousands of headquarters employees. The number of employees who will make
windfalls in 2019 is easily larger than the number of homes for which they’ll
compete.

Minuscule compared to the housing _stock_ sure.

[0] [https://www.allisonchapleau.com/marketreports/san-
francisco-...](https://www.allisonchapleau.com/marketreports/san-francisco-
mid-year-market-report-2018)

~~~
creddit
That's in SF, a tiny portion of the "Bay Area housing market". Additionally,
of those thousands of HQ employees, relatively few of them are going to gain
the wealth needed to purchase SF homes. Consider how many of those in are non-
tech and therefore low-equity positions as well as it being the case that many
(most?) joined much later and had equity packages converging to market comp.

------
wpietri
Are they profitable? Last I heard they were losing quite a bit of money. [1]
And even if they manage to squeak out a GAAP profit, I'm not sure if the
business is sustainable. Given that a lot of the capital and operations costs
end up on the books of drivers, it's harder to do the math for an end-to-end
costs-vs-benefits comparison.

[1] [https://www.reuters.com/article/uber-results/uber-narrows-
lo...](https://www.reuters.com/article/uber-results/uber-narrows-loss-but-
still-a-long-way-from-profitability-idUSL1N1V611I)

~~~
freyir
They're not close to profitable. Recent quarterly losses:

    
    
        Q1: $601 million net loss
        Q2: $891 million net loss 
        Q3: $1.07 billion net loss
    

I'm not an accountant, but I'm not sure how this can go well for them.

~~~
quickthrower2
I can't get my head around that. They lose a fortune every few minutes.

~~~
colinbartlett
$8,100 per minute apparently:
[https://www.google.com/search?q=1.07+billion+dollars+per+3+m...](https://www.google.com/search?q=1.07+billion+dollars+per+3+months+in+dollars+per+minute)

------
spiderPig
$120 billion? Wow, so SoftBank 3x’ed their $7bn investment in a year?

~~~
kerng
Yeah, even if the value and markets drop by 50%, it's still crazy. But long
term Uber has potential due to their network and diversity now with other
offerings.

~~~
lsc
So, like the hardest thing uber has done, I think? is that they've convinced
local governments to not enforce taxi regulations.

I think this was really hard, and I think it might be durable; I mean, I am
generally kinda leftish and support a well-regulated market, but I also
heavily use ridesharing in a way I never used taxi services.

But, while those things are hard and valuable... they aren't exclusive to
uber. I mean, ride sharing services are highly location based; like less than
1% of my uber use is done outside of the bay area (and most of the time, in
those cases, I'd be willing to pay taxi rates and deal with taxi
inconveniences)

I personally have fantasised about building a ride-sharing federation system,
or a ride sharing clearinghouse system; You'd hook up your local ride sharing
co-op with my app, which would allow the customer to input source and
destination addresses, and then get quotes from all interested providers.

So.. what I'm saying is that while I see a lot of value in what uber built, I
don't really see how they can prevent another company from moving in (on a
per-market basis) and grabbing up all their customers.

I mean, I already use both uber and lyft with a preference for whichever
seemed cheaper last time I checked. That doesn't seem like a business with a
lot of room to improve margins.

------
boxcardavin
I've noticed a surge ofex-uber folks looking to angel invest having been
popping up in the past few months. I'm excited for this IPO purely for the
money that will be invested in transportation this next year.

~~~
john_moscow
>I'm excited for this IPO purely for the money that will be invested in
transportation this next year.

Not really. More like U.S. pension fund money being used to pay off the Saudi
investors, or whoever is behind the SoftBank laundromat.

------
uptown
Talk about surge pricing.

------
almost_usual
So are these companies rushing to IPO before a 'potential' recession occurs?
Does anyone else not feel confident about this? It seems fear driven and not
very calculated. Maybe I'm missing the bigger picture..

~~~
woolvalley
The prep and planning required for these IPOs were done months before these
market drops happened.

~~~
thatoneuser
I would assume that when we’re talking about billions of dollars that the
people in charge of creating an IPO strategy are a bit more ahead of the
markets than the rest of us right? Full disclosure I’m not knowledgeable in
this area, but it would seem to me that this is the case and having made plans
months before the market turns isn’t necessarily proof that it isn’t being
done with market knowledge. Just a thought.

~~~
slededit
From what I read in Matt Levine's bloomberg column - not really. Bankers make
money by being middle men, not predicting the market.

~~~
seem_2211
Yah, there are people in finance who try and work out what the market is
doing, but those people aren't really the people who work in M&A banking.

------
zakum1
Sustainability is questionable for these firms. Ride hailing and similar
services are more likely to evolve into local offerings. It is not a difficult
business to replicate, technically, while regulation, infrastructure, social
concerns can all be better addressed by local networks. A backlash is growing
against exploitation of drivers and privacy weaknesses, which are natural
results of the current global aspirations of these networks. I will stay out
of these IPOs

~~~
quickthrower2
It's hard to replicate the chicken and egg market of drivers and passengers.

~~~
lsc
I don't think it is? most drivers I've asked have used both uber and lyft and
would switch for special incentives; I know a lot of passengers who only use
lyft because of the bad reputation uber has, but of the uber riders, most of
them also have lyft, and switch based on incentives.

I mean, you need a critical mass in a short period of time within an area, but
that's just a matter of throwing money at the problem, and there's no reason
you couldn't be a perfectly reasonable regional player in this game.

I mean, of course, at current prices, where margins are all but negative, that
requires a lot of money; but in an environment where uber charged enough to
have a healthy, profitable business? whenever the uber margins started to
climb, you'd see regional competitors popping up.

I mean, that's just my guess. We don't know, because we haven't seen a high
margin ride sharing pricing scheme, not after uber made it clear that
companies didn't need to follow taxi regulations.

~~~
eeeeeeeeeeeee
Yep, most drivers I’ve talked to also have pretty close communities of fellow
Uber and Lyft drivers. They talk a lot and share tips and information. A
better offer is all it would take people to jump ship.

------
crispytx
$120 Billion valuation on $2.6 billion in annual revenue? Seems like a pretty
steep price to me!

Note: I believe that $2.6B figure that I found does not include the amount of
ride revenue that goes to the drivers, so maybe that's why the valuation is so
high. If you add back in the drivers share of the revenue, maybe the valuation
isn't that crazy.

~~~
ndirish1842
> $120 Billion valuation on $2.6 billion in annual revenue?

That number is quarterly revenue (and as you say does not include the share
the driver takes)

~~~
arcticbull
Pricing them at 12X net revenue out the gate is pretty aggressive to say the
least. Especially when their margins were -60% back in 2016 and in late 2018,
and if anything they've gotten worse with the recent price drops. [1, 2] It's
not fair to compare them to the negative margins enjoyed by other tech
companies as most software companies are zero-marginal-cost businesses. It's
far from clear to me that people would pay the double price per ride it would
take to break even.

A few years ago, if I'm not mistaken, they even switched to counting the
entire value of an Uber Pool/Express Pool ride as net revenue (something they
don't do with their core product offerings) muddying the water. Does anyone
know if that's changed? [3]

$120B would price them at the same net revenue multiple as Square ($2.21B/yr @
25B market cap) while Square has much, much better margins (0% vs -60%) - and
is itself widely regarded as not being a cheap buy.

[1] [https://techcrunch.com/2017/04/14/uber-shares-growing-
financ...](https://techcrunch.com/2017/04/14/uber-shares-growing-financials-
to-distract-from-negative-publicity/)

[2] [http://nymag.com/intelligencer/2018/12/will-uber-survive-
the...](http://nymag.com/intelligencer/2018/12/will-uber-survive-the-next-
decade.html)

[3]
[https://www.bloomberg.com/news/articles/2017-04-14/embattled...](https://www.bloomberg.com/news/articles/2017-04-14/embattled-
uber-reports-strong-sales-growth-as-losses-continue)

------
dawhizkid
The number of liquid millionaires in the Bay Area will be astounding come next
year...

~~~
arcticbull
Something tells me property values are going up again. It's been a little weak
lately but not after this.

~~~
quickthrower2
What's the MO for a tech millionaire, do you retire in the bay area or f-off
to somewhere where you can retire in luxury? Or keep grinding in SF?

~~~
dawhizkid
A rank and file employee at one of these cos unless very early is not
necessarily getting so much after taxes that they can retire in SF following
an IPO...it's house money, not necessarily retirement money.

~~~
arcticbull
The median price per square-foot is around $1100 which means that if you make
$2 million pretax in an IPO you’re left with approximately $1.2 million after-
tax which is the average price of a nice 2br/1.5ba condo, a little short of a
single family which is $1.5 million.

I think the MO is based more on age and where you’re at in life, people tend
to leave San Francisco in their mid to late 30s and either set up shop in the
South Bay, or move home.

IMO That’s why 1-2 bedrooms are so popular here. You buy, then keep it as a
rental or sell when you leave.

------
nopinsight
Uber’s PR team probably rushed the news out right after Lyft’s IPO
announcement to make sure that investors would spend as much time to consider
its prospectus as they do Lyft’s.

The possible market crash in 2019/2020 predicted by quite a few prominent
economists and approximately $1 billion a quarter burn rate [1] have for a
while been major reasons for their upcoming IPO.

[1] [https://www.bloomberg.com/news/articles/2018-11-14/uber-
reve...](https://www.bloomberg.com/news/articles/2018-11-14/uber-revenue-
slows-as-quarterly-loss-surges-to-1-1-billion)

~~~
jacksproit
There are enough economists that every possible prediction gets made. You
shouldn’t lend credence to those who sow fear.

~~~
nopinsight
IIRC, it was a survey of at least almost a hundred economists and 80% said by
2020.

I also read reasonings by Roubini who predicted the 2008 Great Recession
correctly and Martin Feldstein at Harvard. They sounded quite convincing.

Interestingly, I did not encounter any opinion by an economist that it is
unlikely to occur before 2020.

The flurry of upcoming IPOs is also partial evidence of what top VCs and
executives at major tech startups think.

~~~
sjg007
Ok. so what is the cause of this great recession? Nafta? China? What?

~~~
disgruntledphd2
Rising interest rates and corporate debt, at a guess.

------
delta-neutral
I just made a video summarising last week's HN post on Lyft's filing, check it
out: [https://youtu.be/Wa9uzVYA4K8](https://youtu.be/Wa9uzVYA4K8)

------
john_moscow
Decades ago companies competed in being the first to bring the product to the
market, so enough prospects would try theirs first and become loyal users.
These days the competition is about being the first to sell your story to the
retail investor before the hype cools down and people get disillusioned about
the entire business model (see GRPN, SNAP, etc).

I'm truly wondering how sustainable is this and how hard the market correction
will be...

~~~
whitepoplar
My favorite thing about the public markets is that it doesn't matter how much
hype a company garners on TechCrunch, where the founders went to school, or
how slick the company office spaces are. A piece of shit is a piece of shit,
and conversely, a diamond is a diamond. That's not to say that public
companies can't run on hype--they absolutely can--but eventually hype wears
off and a company must show that it's a real business.

~~~
paxys
Have you met TSLA? Public markets are as much based on hype than anything
else.

~~~
sethherr
Have you seen
[https://news.ycombinator.com/item?id=18618365](https://news.ycombinator.com/item?id=18618365)
? It brought interesting insight into additional factors in TSLA’s valuation

~~~
isoskeles
I don't understand how this brings insight into "additional factors" in their
"valuation", as the article mentions nothing about their valuation, just that
they have efficient batteries.

~~~
krn
Many people think of Tesla as a car company, when actually it's an energy
company. Other car manufacturers are not.

~~~
azhenley
Reminds me of a quote I once heard (but can't find now) about Ford or GM, that
they aren't an automobile company but rather a finance/loan company.

~~~
taneq
Kind of like big mining companies aren't actually mining companies, they're
finance and investment companies. The actual mining is done by contractors
three or four tiers down in the contract stack.

~~~
quickthrower2
No company is a what it actually does company.

~~~
sah2ed
> _No company is a what it actually does company._

Or perhaps that companies, like individuals, have facets.

Someone calling Google a search engine company is no more correct than you
saying they are an advertising company, technology company etc, or in a
negative sense, a monopoly.

Each of these epithets refer to the same entity, it's just that each
emphasizes a particular trait over other traits for the point being made. A
regulator is more much more likely to use "search engine" in conjugation with
"monopoly" to characterize Google than with the term "technology company"
since their goal is to highlight a potential case of abuse that is known to
stem from such market power.

------
imustbeevil
I'd confidently state that I love capitalism, but I'm not very happy with the
idea that Uber could turn 17 billion dollars into 7 billion dollars and then
hand the bag to retail investors.

The thing I tell myself is that the money is all going to the same place
anyway. Yeah, Uber is going to cash out and bomb from their IPO price, and
everyone who buys will lose. But anyone who would buy Uber is going to do any
number of equally irrational things with their money, not to mention the fact
that no matter who "owns" the money it will either be sitting in a bank or
another asset, so it doesn't really matter.

[http://fortune.com/2018/03/06/how-much-money-uber-
spent/](http://fortune.com/2018/03/06/how-much-money-uber-spent/)

~~~
koolba
I have no lost sleep for retail investors who confuse speculation with
investment. That’s their money and they do can as they wish.

It’s the forced buy in by funds and pensions that I don’t like. Many are
dictated by objective formulas like top N by market cap which may lead either
Uber or Lyft to be included quite quickly. Biggest preventer for either may be
the “four recent quarters of profitability” requirement. Depending on the IPO
and crash timing, this could be a bad one.

~~~
wbl
Active vs. Passive over the 20th century shows that active management doesn't
work for the customer.

~~~
pmart123
That actually is factually misleading. Active has greatly outperformed in
foreign securities net of fees:

[https://www.ft.com/content/d93100ca-
acf4-11e6-9cb3-bb8207902...](https://www.ft.com/content/d93100ca-
acf4-11e6-9cb3-bb8207902122)

In domestic markets, active management has not out-performed net of fees, but
there are bad people in every profession:

[https://www.nb.com/pages/public/global/insights/the-
overlook...](https://www.nb.com/pages/public/global/insights/the-overlooked-
persistence-of-active-outperformance.aspx)

You also have to remember these statistics only look at mutual funds and most
of the best investors don't offer mutual fund products. Passive investing
should work for many investors. I think fees though are a bigger culprit
though than active vs. passive.

~~~
wbl
You linked me to a study that eliminated the bottom quarter retrospectively. I
too can make money if you let me ignore all my losing trades.

