
Uber and Lyft Investors Are Looking for Signs of a Détente - buboard
https://www.bloomberg.com/news/articles/2019-08-02/uber-and-lyft-investors-are-looking-for-signs-of-a-d-tente
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Sphax
> Uber complicates the analysis somewhat. Its third-quarter operating loss is
> estimated to be $4.96 billion. Yes, you read that right. The figure accounts
> for costs related to the initial public offering

Not familiar with all this, can someone ELI5 what are the "costs related to
the initial public offering" ?

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H8crilA
You have to pay the investment banks for underwriting, pay the stock exchange
for listing, pay for the "roadshow", probably have some additional labor costs
on your side and probably some other costs that I'm not aware of.

Why do you think investment bankers paddle IPOs so much? Like sure, they take
underwriting risks, but they also set the IPO price, so they control the
demand. In other words, imagine if you have 100 pieces of gold. I come to you
and tell you: I guarantee to sell this gold for you. You don't know the price
until (a day before) I sell it. You still have to pay for my services.

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kayoone
okay, but 5Bn seems a bit excessive

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H8crilA
It's the total loss for the quarter.

Also underwriting costs should be proportional to the IPO value.

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IGotThroughIt
Uber eats is their golden egg. I think it was Stripe's Collison who said that
their cohort of businesses - stripe, lift, uber et al - need to first build
out their ecosystems then once done, a plethora of other business
opportunities will emerge and that's where the profits will emerge from. For
instance what uber eats is to uber, atlas and radar are to stripe.

~~~
matwood
Sure, but how long will people pay $10 to have a $5 hamburger delivered to
them?

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TeMPOraL
That is not a problem. Even discounting people too wealthy to care about
cooking, a city usually has plenty of people who, on a given day, don't have
time or energy to cook a meal.

Problem is, you should've paid $15 for this to even make sense, but here $5
comes from investor subsidies. Eventually the money runs out and the scheme
collapses, until next company can convince next round of investors to again
try selling $10 bills for $5.

~~~
Retric
On top of this classic delivery places mainly sell cheap pizza and Chinese
food that have high margin for food. This subsidies the delivery and makes it
profitable even when people don’t order drinks.

Further, the radius of delivery tends to be smaller allowing a driver to make
more deliveries per hour lowering costs.

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blunte
Here's my ignorant perspective as an outsider to SV:

Starting with the late 90s, techies (good people, smart people, people who
built things) got rich in a new, very fast way. Whether they were early
investors in Netscape, employees of Microsoft, or one of the many who started
companies which were then bought by giants, the result is that they came into
money so big that they literally had it to burn.

After the "how many Ferraris can I own" phase wore off, they continued doing
what they loved - building and being involved in tech projects. This resulted
in more financial successes, and more money.

Early windfalls put them into new positions as investors. And frankly, by
investing in a selection of start-ups, the outcome was almost certainly that
at least one investment would pay off 1000x or more. This created more money.

However, in many cases, these gains were artificial. The stock market creates
play money which big companies can use to buy smaller companies, thereby
"increasing" their perceived value - and thus their stock price, and thus
their ability to go buy more. This is not sustainable, because eventually
there isn't something big enough to buy to keep up the appearance of growth
and increased value.

My favorite example of this was WorldCom
[https://en.wikipedia.org/wiki/MCI_Inc](https://en.wikipedia.org/wiki/MCI_Inc).
MCI, for those old enough, was once a booming telco with the strongest
internet backbone in the US. The got bought by a little Southern US company
run by an aggressive CEO - Bernie Ebbers, who learned that acquisitions paid
for with stock would increase the "value" of the company, which would increase
the future buying power of the stock. I enjoyed a brief and completely
ineffectual period of employment with MCI-Worldcom and got to see the
dysfunction of the collection of gathered companies. Unfortunately for Ebbers,
it was getting difficult to find companies big enough to buy that would make a
measurable increase in perceived value. Sprint was the last big target, but
that sale was blocked by the US because it would have created an internet
monopoly. MCI-WC happily offered to buy Sprint without their internet
component, but Sprint rejected that. Once the deal was off, the drag of poorly
integrated companies all under one umbrella slowed the MCI-WC train to a stop.
Then the investigations began, and we know how that turned out.

I see this repeating, but starting with the early tech-millionaires. They have
so much money, and they seek similar % returns, so they're willing to dump
more money into more ambitious (or asinine) projects. But as those of us
outside the madness can see clearly, it won't work.

That's not to say that new ideas should get investment, and that's not to say
that 1/10 success rate is bad. But keeping some sense is important, and it
really appears that the "successful SV investors" have totally lost their
sense. In the end, they won't be hurt; the foolish stock market investors
will, as usual. They follow trends, they buy into unicorns when they're
allowed to, and they usually come out losers.

I would like to see a real shift in behavior from the current tech investment
system. First, the supposed race to returns which causes some companies with a
good idea to make terrible short term decisions (under pressure from VC
partners) needs to stop. That is just a screwing and fleecing of other people
which only serves the VCs. Second, if a company cannot become profitable in a
few years (depending on the type of product/service), then the investment
should stop or the company should make a huge pivot. Third, that VC money
should be distributed more widely across education. There are a lot of very
talented, motivated young people who could do great things if given some
opportunities.

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dpflan
I'm not quite sure I understand the use of the word "Détente" in the title. Is
this a détente between Uber and Lyft regarding ride pricing strategies? Or
becoming less competitive towards each other?

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nradov
The same mutual funds own large portions of both Uber and Lyft. So while no
one has proven any sort of anti-competitve collusion, I suspect investors may
be pressuring both companies to scale back the direct competition.

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acollins1331
This is not a sustainable company. Autonomy will not save it in time. The VC
rounds and lying are over, it's valuation will continue to plummet. This is
classic America for you. New startup comes in and undercuts regulated
businesses (taxis) forcing them out of business. Then the VC money runs out
and you find out their business was unsustainable. The only way Uber will stay
afloat is to raise rates. Now we have the same rates we did before with cabs
but none of the nice regulations on them, and none of the decent paying jobs.
Good thing a bunch of investment people got rich though. America is still
great!

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Barrin92
It's fascinating to watch how a company without any high margin business,
insane losses and zero assets to their name balloons to a 80 billion
evaluation, all on the promise of some vague future business model that does
not exist at all. It's genuinely mad.

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SEJeff
You realize you just perfectly described the entire Silicon Valley venture
capital funded tech industry, right?

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twic
No. Software businesses have very high gross margins, because the cost of
goods sold rounds to zero. They can be losing money because of high fixed
costs, but there's an obvious way out where you grow sales to the point where
the margin covers fixed costs, and then it's all gravy from there.

Uber does not have unit economics like this.

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Marazan
YoU JuST donut UnderSTand Their BusyNEss MODEL!!111one!

~~~
dang
Could you please stop posting unsubstantive comments to Hacker News?

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ghaff
The current headline "Uber and Lyft Investors Are Looking for Signs of a
Détente" isn't really touched on in the body of the article.

But it seems obvious that Uber and Lyft need to both raise their prices--with
_of course_ no collusion involved /s. That does get into the question, as the
article, touches on of what happens to the market for these services if you
double (or whatever) what they cost. Presumably fewer riders which means
longer waits, fewer areas where the density makes them viable, etc.

So higher prices/worse service. I think these would still work in cities for
when people would have historically taken taxis. Probably works less well for
casual use and when people are using to replace public transportation or car
ownership on a daily basis.

~~~
tim333
A problem with Uber and Lyft as investments is that the barriers to entry
aren't that high. In London recently I've been using Kapten and Bolt rather
than Uber as they are both similar services with VC funded special offers. If
Lyft/Uber raise prices the competitors will probably flood in. Some great
deals on Kapten/Bolt by the way - 15 minute journeys for like £2.

~~~
ghaff
That's fair. There's certainly a race to the bottom aspect to the whole
business. But, surely at some point, funding undifferentiated businesses to
lose money when you know they'll have to raise prices sooner or later (at
which point they're just like everyone else) can't continue forever. I know a
lot of VCs are stupid, but that stupid?

Maybe we just end up with Taxis 2.0. Mostly local businesses with a very low
cost structure.

~~~
tim333
Or maybe someone like Google provides an almost free (commission wise) app
service for drivers. A bit like providing Android against iOS et al.

