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Uber S-1 (sec.gov)
708 points by wferrell on Apr 11, 2019 | hide | past | favorite | 531 comments

People here seem to think that Uber/Lyft do not have any competitive moat. I disagree. What we seem to forget is that just because a VC can burn boatloads of money to capture ridesharing market from Uber/Lyft doesn't mean that they would. From a game theoretic POV, Uber and Lyft have signaled that they're ready to fight for survival in markets they are established in. Unless as a startup founder you can demonstrate that you can achieve lower cost structures than Uber/Lyft, no VC will fund their rapid growth (small offerings will still find a niche, assuming they don't get gobbled up). Uber/Lyft do have a VCs-will-not-race-to-the-bottom-with-them moat, and tomorrow they might as well raise their prices to turn profitable. Their biggest challenge is Waymo and SDC because if a competitor as significantly lower cost structure, all bets are off.

> no VC will fund their rapid growth (small offerings will still find a niche, assuming they don't get gobbled up

And yet Grab and Didi drove Uber out of South East Asia and China, Ola is giving Uber a run for its money in India and now GoJek in turn is challenging Grab. In my recent trip to Tokyo we were mostly advised to take regular cabs Vs Uber in contrast to a year ago. That's literally half the world where they're getting out competed.

When reasoning doesn't line up with facts, there are usually flaws in the logic. One possible flaw it turns out is that well off globe trotters or even people who frequently travel across cities in a country and would love to use the same app everywhere likely form a small % of total cab trips. Majority of trips are just local trips by an area's residents. So locally, majority just goes with whoever offers better service and relevance. Cutting Price can trump over these but by going public, bottom line became a lot more important to Uber and Lyft - so this isn't likely a viable strategy. Another possible flaw is that the compute required to support this is likely commoditized and there's not likely as much competitive advantage in data.

So it's going to be interesting...

>>When reasoning doesn't line up with facts, there are usually flaws in the logic.

I don't think there's an opposition of facts and logic here. Grab was founded in 2012 (https://www.grab.com/sg/about/), Ola in 2011 (https://www.olacabs.com/about.html), and GoJek in 2010 (https://en.wikipedia.org/wiki/Go-Jek). All of these were entrenched players in their respective markets when Uber decided to put up a fight. Uber gave the Grab and Ola's VCs no option but to double down, if they were to save their existing investments. In this race to bottom, it was Uber who blinked first. Losing SE Asia was not an existential threat to Uber, but definitely for Grab. Media likes to talk winners and losers, but Uber did end up taking 27.5% stake in Grab just to leave the market (https://techcrunch.com/2018/04/24/grab-uber-deal-southeast-a...). However, their fight in India with Ola continues. But to my initial argument - back in 2010-2012, we thought that the network effect of social networks (like Facebook) extended to ride-sharing services too creating high barriers to entry. We know now that isn't the case. Imagine how a VC would react today to a startup founder pitching a ride-sharing idea in a market where Uber/Lyft are already entrenched, given what we have learned from Lyft IPO and Uber's SEC filing. My argument may seem counterintuitive here, but I believe that the Uber/Lyft's revealed financials is what may ultimately save them. They have successfully managed to make the ride-sharing market unattractive (at least for 10x return seeking VCs).

Apart from SDCs, there might be a market for an enterant that focuses on drivers as much as the rider experience: That could really steal drivers from Uber/Ola/Grab 'cause I hear nothing but endless list of gripes from drivers about how they are treated and how helpless they are.

I'd go back to late 2000s when Nokia's and Blackberry's stranglehold on high end phone market seemed unassailable but how it was blown away in the preceding years by a more expensive product (better app store for developers, better device for the end user).

You underestimate how much VC money is out there right now and Uber's competitive position in international markets is far from stable.

They did not get "out competed" in china, a country where competition has nothing to do with success. Likewise in Russia. Grab is the only company to out compete Uber so far.

Ola vs Uber in India is so similar in terms of experience that I literally open the first app that's on my screen.

There is no way to differentiate in this market. The only thing that would make me switch is a guarantee of a good driver, but that would just raise the costs absurdly.

There is actually -- both the companies have certain cities where they seem to have many more drivers than the other. Due to this, when I'm in Bangalore, I prefer Uber, but when in Calcutta, I prefer Ola.

Thats bs, you only need to google "china bikesharing competition" to know what it means to compete in China. Startups in China will resort to any means, legal and illegal to bring each other down. A lot of bikesharing companies went bust because people essentially competed to the point of reducing price to wipe out the other competitor.

Even if you succeed temporarily, your competitor will clone you and your technology. Its similar in USA but in China its multiplied by the population factor in a region the same area so its more intense.

The competition also permeates downwards and creates beasts like the 996.

On the contrary, China is the most competitive country in Internet industry and Uber was beaten badly by Didi.

Actually, the success of Didi,Grab,Ola etc. vs. Uber proves that in the complex e-business, as long as there is enough market space in the local area, and you can organize a good team, you can win in the competition with foreign companies. Just like Alibaba and JD beat Amazon, Meituan beat Goupon in China.

>> Likewise in Russia.

That's BS. Yandex is an incredibly strong player in Russia in the search space and Google is not outcompeting them either. It was the case way before Putin's political ambitions became relevant.

All in all, there are many reasons to blame Russia for it's government, but that's blatantly not one of them.

Not much, it is like saying that Google outcompeted Apple in mobile world.

It’s more like saying Google outcompeted Apple in creating a better clone of Excel via Google Sheets vs Numbers.

Sure, if you want to define competition as the market you come from, rather than the market you're in.

What about Ola in India?

Also nothing stops a “low tech” competitor from skimming local price information from a larger rival and automating their matching. The pricing has to be publicized or else how else would the drivers know?

Useful points with Grab and Go-Jek. There's a neat backstory to the founders. They used to be classmates and good friends. Last month's Fortune article offered some context - if interested, it's here: http://fortune.com/longform/grab-gojek-super-apps/.

Go-Jek is not challenging Grab.

They have a deeply inferior product, fail to catch up to Grab's breakneck innovation pace.

Also, being an Indonesian company, Go-Jek has a disorganized company culture that is not conducive to competing with a lean, well-oiled machine run by Singaporeans like Grab.

I have traveled extensively in Indonesia, and have always preferred Go-Jek over Grab, and I have a feeling I share the same with the number of drivers and riders, at least in Medan, Jakarta, Bandung, Yogyakarta, and most of Java.

I also don't think being an Indonesian company has challenged Go-Jek in any way. Traveloka, Tiket.com, and Go-Jek are one of the most prominent businesses in Indonesia, and they all look like well-oiled machines.

Besides being racist this is factually incorrect.

Grabs two co-founders were born in Malaysia and the execs are from all over the world.

Both are very successful companies but from the innovation perspective Gojek is most definitely the leader. You need only look at their offering (dozens of products built in house) in comparison to everyone else outside of china. Their food business is now bigger than the ride sharing for example, and their rollout of this was exceptional. Light-years ahead strategy wise of the rest at the time (grab/uber).

The only thing I can think of that Grab has executed on better is international expansion and the initial grab-car service was at one stage far more popular than go-car.

This is so racist...

What's SDC? I got nothing obvious from googling it.

UPDATE: Got it, self driving cars. I am not deleting the comment in case others were confused as well.

Most people in the industry use 'AV', or Autonomous Vehicle.

Self driving cars


SDC as an acronym for self driving car seems to have become a 'thing' on HN very recently, I never noticed it until just the recent past. It's not unreasonable for someone to be ignorant of it.

SDC could have been a company since it was mentioned next to Waymo. I stumbled as well for a few seconds.

Startups won't win this. Manufacturers will. They have brand, cars, and soon can license the self driving tech. How hard is it for a billion dollar company to roll out a ride hailing app? Think about where that leaves Uber. They have to buy the cars from said manufacturers. This already gives them a significantly larger cost base and let's face it, while they also have a brand it is no more powerful a draw than Mercedes or Toyota.

> soon can license the self driving tech

My personal guess is that "soon" for fully autonomous cars is not any reasonable definition of soon. Even if you accept the tech is close to okay in Arizona (I wouldn't), think about the weather and driving conditions in most of the worlds' markets for these global companies.

I agree. The other day I was driving and thinking about this, and I started noticing "how many times during this drive have I looked another human (driver or pedestrian) in the eyes in order to determine their intentions?" It was a significant number even in a 15 minute drive.

I was still thinking about it during my bike ride later in the day, and I noticed that more than a dozen times I exchanged looks and nods with drivers to ensure they had seen me and that it was safe to do something.

No self driving car is able to look a human in the eyes and determine their likely course of action. And it most certainly won't be able to signal to the human a message as complex as "I have understood your intentions".

I got bear-ish on self-driving cars when I realized that, in order to be able to drive in Bucharest, you _have to_ break the (letter of the) law fairly often[1]. Knowing when to do so requires "common sense" which is a notoriously difficult nut to crack - computer vision may be advanced enough, but it's simply not enough. I still think it will evolve in time and reach mass-market, it's just that it will take lots of time - it's not something that will have a purely-technological solution, it will likely require legal and social changes too, and those take time.

[1] E.g. Car stopped in front; do you cross the continuous line to go to the opposite lane, or just wait a bit? Or merging from a side street into a busy main road.... some drivers will let you, but which ones? If you wait until "it's safe", well, good luck.

This is another good point. There's a hardware store near to where I live where it's literally illegal (if you observe the signs) to enter or exit the parking lot of said store. Everyone just understands that someone forgot to remove a road sign saying "buses only, cars forbidden" for the lane where you enter this parking lot. But how would a computer understand this?

I’m not sure that figuring out when to break the law in your example is any harder then figuring out when turning left is legal and safe on unprotected intersection. This is not to say that it's easy, but autonomous vehicles need to solve problems exactly like that one on a regular basis.

Yes - and I was saying that I realized that solving these problems require the elusive "common sense". If we get that figured out, even just roughly, I think we'll break the barrier of general-purpose AI. I'm not sure we're close to doing that... But, maybe I'm wrong.

This argument always seems a little strange to me. I think I can count on one hand the number of times, in 14 years, I've ever made eye contact with another driver while driving, or used some kind of hand signals. And in all of those cases, if the signaling had failed, the situation would have resolved itself just fine in less than a minute anyway. Most of the time, I can't even see the other drivers through reflections on their windshields. Sure, sometimes I'll stick an arm out the window to wave my thanks when somebody lets me merge, but that's not a critical communication.

Where do you live?

It is literally impossible to drive in Rome, Buenos Aires, Lima or Rio without looking at drivers for their intentions.

50% of the worlds population live in cities. Car ownership is more expensive and has less utility in cities too. I'm also certain that we will start retrofitting AV enabling tech into our city streets soon to speed up the process. AV's will be "good enough" for many use cases very soon.

mm. so I don't think driving in cities is easier - I mean, it's certainly harder for a human to drive in a city; I don't see any reason why it would be easier for a machine to drive in a city than in the country.

Controlled environment with good lane marking etc. Obviously some cities are easier than others.

Controlled environment? well-maintained roads? this doesn't sound like any city I've spent much time in.

I'm thinking like 101 seems reasonably straightforward, modulo the occasional construction, but once you get into san Francisco, there's a lot of dodging pedestrians, cyclists, skateboarders, shopping carts, stopped delivery vehicles, etc... It doesn't look nearly as controlled, to my eyes, as 101 does further out.

Here's a thought experiment: how hard is it for a billion dollar company to roll out a simple crud app? Easy, right? Now name a single major bank with an app that is better than "barely usable". Which is easier? A crud app or a ride hailing app?

All my banks have good apps on par with the fintech startup apps I use (and actually I trust them more because they aren't moving fast and breaking things).

Same for me too - my incumbent bank's app is mostly comparable with the latest hot fintech's. The latter has nothing but a slightly more polished visual look, and that's not enough for me to trust them with my paycheck.

> and actually I trust them more because they aren't moving fast and breaking things

VERY true, not just in finance.

I use a regional bank and their app is only usable for minor day to day things. For that it's fine. But I can't do anything "serious" in it: checking account transactions are limited to only the last 2 weeks; I can't search transactions for a specific amount or merchant or date; I can't view past payments I've made for bills, etc.

For any of the above, I have to use the desktop site. These are not technical limitations either and should all be in the app if we want full parity with mobile.

Which national US bank or investment company has an app you find “barely usable”? The only one that comes to mind is Vanguard and that fits my mental model they’ve cultivated of keeping costs low on extraneous things so in a perverse way is a positive.

Chase's website is pretty crappy. I regularly have to login twice, or check the developer console to debug why I get infinite loading spinners. This is with a stock and up-to-date Chrome install on a good network.

I would give the Bank of American app 4 out of 5 stars, it's better than, say, the Gmail app.

This is one of the more ill-informed tweets. How hard is it to roll out a ride hailing up? Borderline impossible. Especially for companies that have zero competency in service, software and marketplaces.

...which is part of why Audi bought Silvercar. This gave them a well-run service company with physical locations in most metros. And they've recently added renter pickup so it's not like this is black magic.

What's more unrealistic to think is that a move to driverless cars / less car ownership would lead to the manufacturer's rolling over.

> How hard is it to roll out a ride hailing up? Borderline impossible.

So how do we already have Lyft, Cabify, MyTaxi, Bolt, Kapten, Didi, AutoNavi, Meituan, Grab, OlaCabs, and a bunch more?

Lyft is the only one I've ever seen in the USA. Even Uber has struggled in markets where a strong player already existed.

Ubers problem is that it needs to compete locally: https://thinkgrowth.org/uber-is-going-to-0-and-benchmark-kno... . A taxi company does not need to challenge Uber globally to compete with it in any given city - because most taxi rides are from local population. This is different from AirBnB - where the customers need something that can be trusted globally.

I doubt AirBnB actually has a moat either, in practice. I think I'm using the right income - AirBnB's profit margin is something like 3.5% [0]. You don't need much of a moat to defend 3.5% profit margins. JP Morgan is sitting at around 30% [1] - that is the sort of margin that needs a bit of defense.

That aside, yeah, Uber has a negative moat; I don't see why the car drivers themselves couldn't band together to make a competing app if the mother company started to take a real cut.

[0] https://en.wikipedia.org/wiki/Airbnb [1] https://en.wikipedia.org/wiki/JPMorgan_Chase

so, as long as investors have appetite to lose money to buy market share? you are, of course, right.

But the business cycle goes up, and the business cycle goes down. (I mean, the general trend is upwards, but if you don't think there will be big downturns inbetween, well...)

The problem is that yes, uber and lyft have dominance for as long as they are willing to run the business for less money than anyone else; This puts a pretty hard cap on how profitable they can be.

(I mean, for an example of a competitor who might be willing to do it for very little over break-even, I've talked with several people who would be interested in setting up a competitor that was operated as a driver's cooperative. I mean, even that isn't workable when uber and lift are losing money, but it would work at profit levels that uber and lyft would consider break-even; such a cooperative could work really well as a break-even business, while investors in both uber and lyft would be super disappointed with a break-even business)

Compounding this, the ridesharing space is one that is massively price sensitive. Uber and lyft are so cheap that I've gotten rid of my car, and I use them all the time.

But if they raise their rates significantly? I'm gonna go buy a honda and drive myself; They get to duke it out for driving me around when I'm drunk, but we're talking less than 5% of my rides.

I suspect I'm not super unusual in this regard.

I’m skeptical about a non-profit service competing with Uber and Lyft. It would take a lot of money-losing ride subsidies to get the substantial market share required to get the necessary network effects.

I'm... not sure you'd need a lot of network effects? I mean, you need a critical mass of drivers and riders, but they can be all in a small area and you can still provide a service. I mean, for the occasional user, sure, brand recognition matters; If I'm going from a strange airport to a hotel, I'm probably going to use the brand i know.

But usually? I switch from uber to lyft on my daily commute based on saving a few bucks almost every day. (right now, Lyft has some scheme where you can buy a 30-pack of $15 off coupons for $300. But they're used every time you ride lyft, so if you want to go somewhere for less than $15, you use Uber)

I mean, 90+% of my rides are areas I ride in a lot, where it would be worth my time to put a fair bit of effort into discovery.

I think that on the driver side, there's a lot of drivers with very strong locational preferences, too; If you are in SF and try to get a ride to San Jose, my experience is that 3 out of 4 uber drivers will kick you out of the car when they find out, so I think you might be able to recruit drivers that way, too.

Sounds like Uber and Lyft are both subsidizing your rides - but for a new service to get off the ground would require even more subsidies. There’s a cost to idling and waiting for someone to come along and pay you for a ride. The higher the density of riders and drivers, the lower this cost and the less subsidy required for a given price level.

You only need to idle if you're using a single app. Many drivers use multiple apps at the same time.

True, but I believe this is approach only works well in certain cases. For shared/pooled rides, drivers are automatically assigned a chain of rides. In these circumstances probably few drivers would bother to keep another app open that hardly ever gives them any rides. It would take major subsidies to overcome that. You would need a lot of capital, and I don’t know who’s going to provide that other than investors.

The network effects are key here because you can't have competitive ETAs without having a lot of supply density and without enough demand you can't build the supply density, so aside from the incentives you are seeing Lyft and Uber using now, there are even more subsidies to build the marketplace and you have to do that city by city and neighborhood by neighborhood in the case of larger markets like NYC. There are also heavy ops costs to get a driver through the funnel and to keep them on the platform. Not saying it couldn't be done but it is not so easy for someone to come in and take marketshare.

sure, city by city and neighborhood by neighborhood... but my point is that you have a viable business, even if you only cover one city or even one neighborhood. Most of my traffic is to work and back.

Assuming that you have cheap/open source software (a big assumption) you could even setup federation. Like you and your crew setup a co-op in one area, and get a lot of riders through personal contacts. I and my friends setup a similar drivers co-op in a nearby area, and similarly use our contacts to build up a very local critical mass.

With federation, you could set it up so that if one of my drivers went to your area, say to drop off a customer, they could optionally be put on your network, either to work there, or maybe just to get customers on your network who wanted to go to my area.

I mean, you still have the huge problems of bad behavior, but I don't think uber/lyft have really addressed those problems very well, either. I think those problems are really hard, and maybe those problems would be easier to solve with a bunch of smaller but federated companies than with two large companies? Maybe not. I don't know.

I'm just saying, I think a lot of the critical mass issues could be pushed off to local leaders.

> From a game theoretic POV, Uber and Lyft have signaled that they're ready to fight for survival in markets they are established in.

And fight they have, because they don't have a moat. A moat is a competitive advantage that is _cost_effective_ to defend. Uber/Lyft don't have that.

They can be fought in local markets via regulation and specialization. Global brand is expensive, a long-term liability in local politics, and doesn't get them that much in local markets because it is so easy for both drivers and customers to use multiple apps.

It’s not that Uber can’t be self-sustaining. The problem is that’s not enough to justify their insane valuation.

They titillated investors with tales about autonomous vehicles leading to skyrocketing profits. But now the hype over autonomous vehicles has faded, and it seems unlikely that fully autonomous cars will be mainstream any time soon.

$100B+ for unprofitable ride shares and lukewarm burrito delivery? If you say so.

Why would anyone want to challenge them to take over a market they’re losing billions of dollars in?

That was my reaction. I can build a moat by selling anything below cost. But it doesn't really say much about the business viability, and what happens when you raise prices. Does demand shrink, or does another competitor with money to burn undercut you until they are out of money? Or, maybe...things work out.

It just doesn't seem to prove much beyond "subsidized pricing is popular".

ie MoviePass. As soon as a unprofitable company loses its investor backing it doesn't matter if they control the majority of the market, they are still doomed.

No different than airlines. You are only as profitable as your dumbest competitor- someone wise once said

You don't need people to make that point, Uber agrees to it too:

The personal mobility, meal delivery, and logistics industries are highly competitive, with well-established and low-cost alternatives that have been available for decades, low barriers to entry, low switching costs, and well-capitalized competitors in nearly every major geographic region. If we are unable to compete effectively in these industries, our business and financial prospects would be adversely impacted.

They can't just raise prices willy-nilly; taxis still exist.

Most people I know hate taxis. Uber can nearly raise prices to parity with cabs.

Hailing cabs by phone (and later on, using the non-Uber hailing services that interact directly with cabs) never worked as well for me as Uber. Takes too long for them to get there, and the incentive for them to abandon your request and pick up a fare they find on the way is too strong.

Taxis only make sense in the very small perecent of the US where you can walk outside and hail one coming down the street.

Reminds me of a story I saw (I think on reddit) where someone had booked a cab for a 5am trip to the airport, and after it didn't show up after 30 minutes they just called an uber. They hadn't taken a cab since.

I know it can be an issue on the driver side in terms of job security, but poor customer service and behaviour is weeded out much better on ridesharing apps due to how their rating and tracking systems work.

Wait, is that how shitty cabs are in the US?

In Germany, we have two types: Funkmietwagen (kinda "callable cabs") which can't pick up someone without being called and proper taxis which both get dispatched but can also wait at taxi ranks to pick people up (or pick someone up on their way somewhere when empty).

Neither of those would abandon someone they've been dispatched to and dispatcher estimations are usually pretty accurate.

> Takes too long for them to get there, and the incentive for them to abandon your request and pick up a fare they find on the way is too strong.

The few times I've reserved a taxi for someone the estimation was accurate and the driver very friendly. Same for the company I work for, no real issues with taxis. Company wise it's often easier to just take public transport though (quickest to/from airport).

When it comes to airports, I prefer taxis. I once got a Lyft driver at the airport who did not have enough room for all our luggage. Taxis generally will, and even if they don't, there is no charge for "canceling".

I recently arrived at an airport intending to take a Lyft/Uber out of the vicinity. Tried for 10 to 15 minutes to get a ride on either platform and it would just time out. Eventually opted for a taxi, which were immediately and readily available. Surprisingly it was also 30% cheaper in the end including tip than the quoted price on Uber at the time with surge pricing without tip.

The same thing happened on my most recent arrival back home. I am probably going to simply return to taxis at my home airport for now on.

>Most people I know hate taxis. Uber can nearly raise prices to parity with cabs.

If they are willing to let their ridership fall to just above cab ridership numbers? sure.

That's the biggest problem with the market; demand is elastic. Uber's major competitor for my transportation dollars isn't lyft; it's me going out and buying a honda and driving myself. If they charged taxi prices, I'd buy a honda, and I'd use the rideshare less than 5% of the time I use it now.

In the US, correct. In most of Western Europe a taxi is normally a very different experience from Uber X - a nice car, nice driver, great navigation and safe trip. Yes, you're paying extra, but the comfort is also very different, especially when going from airports.

Which Western Europeans countries have you tried?

Netherlands, Germany, Belgium, UK (hah), France, some cities in Italy, some places in Spain.

I live in the UK. Can't say I agree with you. Especially because I have a mobility impairment. The Uber drivers are always more willing to help, (I'd imagine thanks to the rating system), stop exactly where needed etc.

In London - I'd say cabs are better. In Liverpool and Manchester, I'd say on par with Uber. Didn't have experience with Assist and Access Uber cars, so you have a better view on that.

Thanks. I'm surprised your description applies to all those places, but to be fair I don't really have direct experience riding taxis there.

Why surprised?

Because it doesn't match the reports I got from people living in Belgium, France and Spain.

Nearly? I'd pay more to not have to use a taxi.

And as much as people used to hate taxis, the tide is turning to people hating Uber/Lyft more...mainly due to trying to kill passengers, pedestrians, bicyclists at a greater rate since the drivers aren't professionals and rarely know the city they're driving in.

Taxis have a damaged brand and no clear way to repair it at scale.

1. Be a city council 2. Create an open source competitor for integrated transport management 3. Destroy profit

They don't have to be outcompeted by another similar entity, though. Their pie could get eaten by lots of small local operators, or by someone like Google with a fleet of self-driving cars.

"Uber/Lyft do have a VCs-will-not-race-to-the-bottom-with-them moat, and tomorrow they might as well raise their prices to turn profitable."

That's the multi billion $ question, if they hike prices to become profitable, will customers swallow it, or jump to local alternatives. My feeling is the latter, I don't think you get economy of scale for running a taxi business, because your biggest cost is paying local drivers.

I have several apps on my phone for calling a ride. I usually pick Uber because it's cheapest, but if there is any hint of a surcharge I scan all of the apps to pick the cheapest.

Same here; Uber isn't even my first choice anymore, between the four we have available (five if you include taxis).


- Expected to be teh largest IPO this year in the US.

- 10th largest all time

- trying to raise around $10B

- 2018 Year Ended Revenue $11.27 billion

- 2018 Year Ended Net Income $997 million

- 2017 Year End lost $4.03 billion.

- 10 billion trips in September 2018, up from 5 billion in September 2017

- Gross Bookings From Ridesharing $41.5 billion in 2018

- Revenue From Ridesharing Products $9.2 Billion in 2018

- List under UBER, good ticker!!

- 29 banks listed as underwriting the IPO, for those of you wondering, yes that is alot. Like 20+ more than a typical IPO.

From Bloomberg:

- 2018, Uber's operating loss totaled $3.03 billion, however it technically turned a profit in 2018, generating $997 million in net income. That's thanks to a $5 billion "other income" benefit.

Other Income is defined as:

- Interest income, which consists primarily of interest earned on our cash and cash equivalents and restricted cash and cash equivalents.

- Gain on divestitures, which consists of gain on sale of divested operations.

- Unrealized gain on investments, which consists primarily of gains from fair value adjustments relating to our investments such as our investment in Didi.

- Foreign currency exchange gains (losses), net, which consist primarily of remeasurement of transactions and monetary assets and liabilities denominated in currencies other than the functional currency at the end of the period.

- Change in fair value of embedded derivatives, which consists primarily of gains and losses on embedded derivatives related to our Convertible Notes.

- Other, which consists primarily of changes in the fair value of warrants and income from forfeitures of warrants.

- Lyft now at $61/share, ouch, there just is no other way to put it. THey pulled a lot of financial engineering tricks to boost their IPO price and well the results speak for themselves:(

Biggest Surprise to me:

- Uber Eats comes in at $165 million for Q4, for comparison Ride sharing generated a total of $2.5B in net revenue, the rest being ride sharing.

- So Uber is not really all that diversified in terms of ride sharing vs other, they are essentially Lyft in more markets.

> Lyft now at $61/share, ouch, there just is no other way to put it. THey pulled a lot of financial engineering tricks to boost their IPO price and well the results speak for themselves:(

I don't understand why this is seen as a negative. An IPO is a share issuance — the higher the price per share, the more money they receive in exchange for the same percentage of the company. Post-IPO "pops" represent money left on the table, effectively a transfer to the high-dollar investors with connections to the underwriter who can buy at the issue price.

It's a good thing for Lyft-the-corporation but a bad thing for anyone who bought into the IPO.

Any sort of financial engineering tricks that goose the accounting numbers without affecting the long-term health of the business are basically a transfer payment from people who buy in at the inflated price to entities who sell at the inflated price. It's rational for the company to try to pull them; it's also rational for prospective shareholders to refuse to take the other side of the trade (at least until the price corrects to the point where the true fundamentals make it worth it). In today's markets, you can always find someone irrational.

Think about morale at Lyft. You have employees locked in who cant sell for first couple of months. They are seeing their networth plummet everyday.

Employees saw their share price go from $44 in June (private markets) to a range of $62-68 during the road show last month to an IPO at $72, to close today at $61.

Again, in less than a year, rose from $44 to $61 with a brief uptick to $72 in the middle.

How is that plummeting?

Loss aversion tells us that gains and losses have different emotional impact. In particular, perceived losses supposedly have a strong negative impact on people. [1] If Lyft employees value their shares at the IPO price, they might be feeling a loss all the way from 72 to 61.

[1] https://link.springer.com/chapter/10.1057/9781137544254_13

You’re just arguing for the sake of arguing. It’s a net positive. Positive is good.

He's got an extremely valid point, and morale at Lyft IS low, largely because of the reason above. Definitely not arguing for the sake of arguing.

But anchoring.... people anchor to the all time high.

They are going to get hammered on taxes, though. The IPO price sets the income they are taxed on while the price in 6 months determines what they actually take home. The result is that if you’re in California and the stock price falls to 30ish, you effectively take home nothing.

Not sure why people are downvoting you guys for telling the facts.

Why is stocked taxed at the IPO value rather than the current value? Relatedly, what happens if you simply sell the stock? Seems to me like that would just generate income you owe taxes on.

Aliston is referring to a specific circumstance that screwed many employees during the dot-com boom. If you exercise your options, that creates a taxable event for the difference between your option strike price and the fair market value of the stock on date of exercise. If the stock price subsequently goes down a lot, you can end up with a tax bill greater than the market value of the stocks when the lock-up period ends. It was generally advantageous for employees in the rising stock environment of the dot-com bubble to exercise their options before the IPO, or shortly after. For one, it starts the long-term capital gains timer going, so you can sell for LTCG rates 6 months after the lockup ends rather than a year. Two, the difference between your option strike price and exercise price is taxed as income (usually - for NQs and ISOs over the AMT, but not ISOs in low tax brackets), but the difference between exercise price and sale price is taxed as capital gains. That created a situation where many employees had tax bills on stock worth less than the tax bill.

This situation doesn't apply when you have straight RSUs that you sell when the lockup ends. These are withheld at income tax rates when vesting, and then taxed as capital gains rate when you sell. The IPO price doesn't matter in this case.

Pigs get slaughtered. Trying to time your options on a volatile stock to avoid short-term capital gains is gambling. Same-day exercise + sell is what any financial advisor will recommend.

RSU risk is worse because it is outside of your control, unless of course you don't have RSUs. You get taxed on the vest date. Withholding is often at the 25% minimum government rate. Assuming you're in a no-sell window, any downward movement before you can sell increases your effective tax rate, potentially to over 100% in the worst case. Consider the dot-com crash case where your RSUs were worth $1M on the vest date, withholding is $250K, taxes owed are ~$370K, and your regular salary is $100K. If the stock goes to $0 before you can sell... On April 15, the government will demand a check from you for something around $120K, but all you actually took home was around $70K. An effective tax rate of around 170%!

The real issue here might be that you can only deduct $3000 per year in losses. With $1M in losses, you'll be able to carry that over for centuries!

Carried over losses can be applied against future _earnings_ though so if you make $1M and not pay any taxes on it at that point because it's being offset by your past losses. I used it to offset my gains in taxes from selling my company stock (ISOs) when I sold a rental property at a substantial loss shortly after the Great Recession. Had my taxes double checked with an accountant to make sure I did the math right and I was right to the cent.

It's so fucked that the law is written this way.

I thought the saying was “pigs get fat, hogs get slaughtered”?

Also, with $1M in losses, one would not be limited to the $3k offset against ordinary income. Presumably one would have other gains along the way from other investments.

The quote I was paraphrasing was something like, "Bulls make money. Bears make money. Pigs (or maybe hogs?) get slaughtered."

And yes, you are correct on the other point. You would be able to avoid paying tax on your next $1M in lifetime capital gains. *disclaimer: This is not financial advice.

Employees get taxed on the value that they vest at IPO, but are locked up from selling for 6 months. The company withholds a percentage, effectively selling a portion at IPO, but it is less than the effective tax rate. I should clarify that this applies to RSUs, not options.

Edit: something similar can happen with options as mentioned, but the mechanics are slightly different.

For RSUs the withholding should be in shares - if your effective tax rate is 40% and you vest 5 shares a month, they grant you 3 shares and immediately sell 2 to cover the taxes. If your effective tax rate was 30%, they'd round up, still sell 2 of them, but remit the cash in excess of taxes to your paycheck. At least that was how my Google shares worked. A higher IPO price works to your advantage, because the refund you get for fractional shares is worth more. You're also never in the position where you have to cover the (income) taxes for RSUs with cash from the stock sale, because the taxes have already been withheld in stock. You only have to pay capital gains when you sell.

Except most companies (including Google) withhold supplementary income at 22% federal plus FICA, regardless of whether your marginal bracket is 22% or 35%+.

Usually this results in significant underwithholding on RSU for federal tax.

Yup, had this exact fear during my IPO. Fortunately, stock went up, so it was a win that I was underwithheld.

I was and continue to be surprised companies release RSUs at IPO and not lock up expiry, the later of which avoids the tax risk.

Can you ask your employer to increase their RSU withholdings?

I'd like to point out that FB went through something similar within the first few weeks. And, the current day price is $177.

Versus not being able to sell at all? Hard to complain if you work at a startup and actually have a massive liquidity event

Should've bought options to hedge.

It's against any competently worded lockup agreement.

"“Derivatives” is sort of a vague term, and there is a persistent folk belief that they have magic powers, that any legal or financial problem can somehow be solved by doing a derivative."


Lyft's common stockholder market standoff agreement doesn't bar hedging. See the s1.

But employees are forbidden to hedge. Source: am one.

It's a tough call to make. By the time options came out, puts were extremely expensive relative to calls due to shorting pressure driving up hard to borrow fees. Aside from how bearish you had to be to justify buying them, you also need a lot of capital you might not have.

Besides, any current employee is barred from trading options by the insider trading policy.

Contractual limitations mentioned by a couple other people aside, options aren't even available until 5 days after IPO. http://www.theoptionsguide.com/criterias-to-list-stock-optio...

They are almost certainly not allowed by their employment contract.

You cannot trade options during your lockup.

It's also a bad thing for all the employees and investors as they have 180 day lock-in before they can cash out.

I don't think how one dresses up financials will have an impact on the stock price 6 months out; there will likely 2 quarters of earning reports (at least 1) which will dictate the price then, not what was released now.

> It's rational for the company to try to pull them

Aren't there issues with follow-on offerings? By taking the entire IPO pot for itself, the company will probably struggle to find investors if/when it needs to come back to the capital markets--which seems like an eventuality with Lyft.

Potentially, but for high-growth unprofitable companies management is usually betting that they can either use the extra money raised to fix the fundamentals of the business in time for the next capital raise, or else they need to dump their stocks on the public market and get out because there won't be a next capital raise. I'd bet that #1 is more common in the management team's head, but #2 is more common in reality.

> It's a good thing for Lyft-the-corporation but a bad thing for anyone who bought into the IPO.

Which in turn is and for the company since the new co-owners (shareholders) don't want to lose money but push the executives to "do something" (while in reality even combined most of the new shareholders don't have much voting power

While you're right in general about a pop, that doesn't really apply to Lyft. Their IPO price was $72 and they're now hovering around $60. They had an initial pop up to around $75 IIRC and then have been on a steady decline since.

Try hiring great talent with a tanking public stock.

Because this is a public market? One of things you expect companies to do, ethically speaking, is to provide honest information wherever possible. If Lyft used financial engineering to boost their IPO price, while they get money in loads while the average Joe loses.

If you miss too badly, you hurt your ability to go to the market in the future. In the extreme you open yourself to lawsuits and activist investors.

In general the big Pops only help the banks and their top investors.

Perhaps when large companies issue options at ipo they should expect this type of behavior.

Uber Eats revenue in 2018 is $1.46B which is pretty impressive

regarding other income: > Gain on divestitures increased by $3.2 billion from 2017 to 2018. This increase was due to gains on the divestitures of our Russia/CIS and Southeast Asia operations.

Covered on page 85, basically spinoffs with other regional leaders

Ive heard from reliable sources 10% of Uber Eats revenue goes to McDonald’s (not promotionally, in revenue)

Wow, that many people are ordering delivery McDonald's? Maybe McDonald's should start delivery services in some markets itself then?

the problem is that you have to have constant stream of orders to justify having people who deliver on payroll. Uber basically has people who deliver and then rent them to restaurants so they never have a problem of constant load.

+1 We recently ordered food from a Chinese restaurant that insisted on their own in house app and went as far as pulling themselves off Uber eats.

We gave them the benefit of the doubt and tried the in house delivery service - food took ~2 hours to arrive, presumably because their throughput to fulfil orders was capped by the number of drivers they could afford to hire full time - it was like going back to the days of every place having delivery men.

UberEats usually takes ~35 minutes for reference.

Why would McDonald's want to do the delivery if Uber volunteers to do it losing money?

Exploiting a business partner that is operating at a loss is a bad move when said partner is providing a significant part of your revenue. You are placing that revenue in jeopardy without good reason.

But in the McDonalds/Uber case I don't think that Uner is imortant enough to McDonalds.

How does the product/revenue work when McDonald's are all franchises - does McD corporate have a first-order incentive to worry about delivery revenue?

I think they probably know they can't do it anywhere near the "cost" that Uber eats charges. It's low value orders so not much comission (my guess) and the delivery fee doesn't cover what they pay the drivers. Plus all the bad PR of running a "gig economy" fleet.

They have 247 delivery in a lot of Asian markets - and I know first hand for at least more than 10 years in China so it's not like McD HQ don't have the business experience of launching the product...

Yeah I'm from Malaysia and we have McDelivery for as long as I can remember.

Imagine my surprise when I first went to Europe and found out that McDonald's is not 24/7 and doesn't do delivery.

They do. Google "mcdelivery" - it's all through south east asia.

McDelivery is the name of the global initiative and it is implemented differently in different countries. In the US, McDelivery is fulfilled by Uber Eats.

Many fast food restaurant chains deliver in South East Asia. It's a bit different because fast food is not the cheapest option there, but it's a step up from street food.

Bad idea. Overhead from running your own delivery service is high, and the profit wouldn't be more than using the existing network of delivery services. It would probably be negative.

It does in parts of the world where costs are low. Over here it makes sense for them to let Uber/VCs subsidize the operation.

I'm noticing more chains offering delivery, I wouldn't be surprised if McDonald's is next.

I'm surprised that Eats is doing more revenue than GrubHub and much more revenue than Caviar.

can you share the two numbers you are using for comparison?

The Q4 numbers I see:

Uber Eats: $165 million Grub Hub: $205 million*

* https://investors.grubhub.com/investors/press-releases/press...

From Page F-31 / 114 of the S1, Uber Eats 2018 revenue is 1.460B.

GrubHub's 2018 Revenue was 1.0B (https://investors.grubhub.com/investors/press-releases/press...)

your Grubhub number is referring to Q4'17...

well, uber eats is in a lot of countries that grubhub is

One thought about your ticker comment - I actually prefer it when the ticker is NOT exact same as the company like UBER or LYFT. This is because I know when I google AMZN, AAPL, TSLA etc. the search engine knows I want the stock price and am specifically asking about stock. For UBER and LYFT I have to type something like ‘LYFT stock’ if I want the price, trends and news around that.

Try adding a $ in front of the ticker and Google will take care of it for you.

Hmm I just tried on an iPhone 8+ googling $lyft on safari and nothing I got back in the top results are stock related. Then I tried on my home desktop with DDG with FireFox and had similar results. Perhaps the behavior is tied to the “google bubble”?

FWIW, it didn't work for me either.

Couple of things which I find interesting are:

- The whole calculation around "Other Income" are nothing short of financial engineering to show bottom line profitability.

- 24% of Uber's gross bookings come from 5 cities - Los Angeles, New York City, and the San Francisco Bay Area in the United States; London in the United Kingdom; and São Paulo in Brazil

- 15% rides started or were completed at an airport.

This $3.2 billion other income in 2018 was from divestitures of Russia/CIS and Southeast Asia operations.

"- Lyft now at $61/share, ouch, there just is no other way to put it. THey pulled a lot of financial engineering tricks to boost their IPO price and well the results speak for themselves:("

Seems they priced it perfectly, extracted maximum value for their investors and left nothing to gain for the public.

Uber is Lyft in more markets? More like UberEats is almost Lyft.

>- 10 billion trips in September 2018, up from 5 billion in September 2017

You make it sound like they had 10 billion trips in that month alone. It is 10 billion by September 2018

When considering 2018 you really need to ignore the 4.9B in other income. The vast majority of that was a one time event, and then the next largest line item is unrealized gains. Not sure what the gains were on but likely something not very liquid and volatile, e.g. a start up.

It's basically a 4B loss for 2018. The numbers all around are just unreal.

Lack of dual class stock is also interesting.

That's not really surprising, is it? Dual class stock is usually issued for tech companies where the founders were able to hold onto a lot of shares until the IPO, which I think isn't the case for Uber.

>THey pulled a lot of financial engineering tricks to boost their IPO price

Could you elaborate? Interested in knowing more

I’m curious about their Treasury department. How do they manage the float bet. when users pay and when drivers are paid? How do they manage FX? A sharp treasury team is quite an asset.

got me curious, 10 largest IPO so far:

https://webcache.googleusercontent.com/search?q=cache:https:... [gcache]

> Adjusted EBITDA was $(1.8) billion in 2018 and $(2.6) billion in 2017

from what? investing unused VC money they expect to burn in the near future?

So... Step one, raise funding to run a revolutionary company. Step two, ditch original idea for being revolutionary once funding is obtained. Use interest bearing bonds and other investments. Step three, profit.

Feels more like Uber and Lyft reached a point where they cannot raise private capital anymore and so jumped onto the public markets to fool random investors. If they cannot be profitable now, what makes them think they will be profitable with SDCs?

I challenge the fundamental premise that SDCs will make them profitable. There is no stickiness to their business model. Moving on to another ride sharing service is frictionless today. Most people I know use both Lyft and Uber. So if tomorrow SDCs become popular and offer a cheaper rate, people will move to them in droves. Nothing stopping them. We know Uber and Lyft are way behind on SDCs compared to Google on that front. It also looks like GM and Ford could there before these two. So what makes them a good investment either in the short or long term?

Uber won't survive the wait for self driving cars, it's simply to far way, even if we take the most optimistic estimates. Uber is burning cash they do not have, trying to make self driving cars work. People seems focused on how much revenue Uber has, but Uber doesn't need revenue, they need profit to finance their R&D.

After the IPO I'd give it a year before the investors starts to demand slashing drivers pay, and cancelling the self driving car project.

Aren't most index funds, almost by definition, required to buy their shares? If Vanguard owns a piece of every listed company, they're going to buy Uber at pretty much any price, right?

>Vanguard owns a piece of every listed company

I doubt this is true, at least not across their primary stock market index funds. For example, VTSAX only holds about 3500 stocks [0].

I don't know how the fund usually treats new, large IPOs, but I highly doubt that they would just blindly buy it at "any price"

EDIT: I just checked the holdings of VTSAX [1] and VGT [2], neither holds Lyft.

[0] - https://investor.vanguard.com/mutual-funds/profile/portfolio...

[1] - https://investor.vanguard.com/mutual-funds/profile/overview/...

[2] - https://investor.vanguard.com/etf/profile/portfolio/VGT/port...

The link for VTSAX says the portfolio data is current as of 02/28/2019, which was before Lyft's IPO (3/29/19).

Good catch, guess we'll see when they update.

They don't hold Lyft because of their dual-class share structure.

Yes, Vanguard will buy at "any price" and will buy more at a higher price -- the funds try to replicate the breakdown of the underlying indices on a market cap basis.

If it falls within fund's target they should just buy it, without thinking. That's the point of low cost ETFs.

There's even a known arbitrage opportunity with things like S&P500. When the S&P committee decides to include a new stock (and delist some other stock) you can front-run the purchases by the giants like SPY or VOO, slightly inflating the stock's value just when the ETFs buy it from you.

Index funds are required to buy shares if the index it replicates (e.g. S&P500) includes that stock.

I wonder about this too. What if I, as an index fund holder do not want the fund to buy up junk like lyft and uber?

The purpose of an index fund is to buy the entire market, under the assumption that an active fund will not outperform the market (after costs). If you want to avoid certain companies, you should buy an actively managed fund.

There are different types of index funds. There are market capitalization weighted index funds that fit your description of buying the entire market, but there are also small cap funds, sector funds, value funds, etc. You can avoid certain companies (e.g. FAANG stocks) by buying certain indexes (e.g. a value index).

I think that’s where “socially responsible” investing comes into play. ie https://www.morningstar.com/funds/XNAS/VFTSX/betaquote.html

Are you kidding? True AVs will make Uber/Luft even MORE profitable because they won’t have to pay out or worry about human drivers. AVs are the end game for these companies.

They will have to pay out and worry about the cars, so this is true only if the cost of buying and maintaining the AV is less than the cost of paying a driver, and I’ve seen no evidence yet that this is or ever will be the case.

They don't have to buy the cars they use today, what makes you think they'll have to buy them when they're self driving?

I can’t tell if you’re joking? Today the drivers buy the cars. A driverless car can’t buy itself, so some entity will have to, and if it is not Uber itself buying the car whoever did buy it will want to get paid just like today’s drivers do.

I'm not joking, and you seem to have missed the entire reason people think of self driving cars + ride-sharing services as being a game changer.

Today people drive others around for money. Tomorrow people let their cars drive people around for money. No one thinks Lyft and Uber are going to be buying the cars, people just won't need to be physically in them to make money from Uber and Lyft any more.

Just because self driving cars are a game changer doesn't mean that all (or even any) of the benefit accrues to Uber. Who holds pricing power in this scenario? The company that makes the car, the person who owns the car, the agent (Uber/Lyft/etc.), or the rider? I think there's a reasonable case to be made that the agents are the most commodity-like element. Tesla e.g. has already shown a desire to use value-based pricing to capture their share of the money-making potential of the cars they sell. Any owner will prefer to rent their car via the agent that pays them the most. Any rider will prefer to rent it through the agent that charges the least.

While I disagree, that's at least a valid argument. You should start with that instead of asserting that the capital requirements of buying up a bunch of cars will be the limiting factor.

True AV are not possible right now nor for the foreseeable future. The technology has plateaued progress has slowed after the first rounds of demo technology showcases by all the big players. New research breakthroughs are needed and more robust and cheaper sensors. Throwing more money/people at the problem doesn't solve this and betting on AVs to make Uber profitable is a very long bet.

The cost of entry into this space is much greater than I think most people realize. It's not "building an app". It's building a balanced, efficient marketplace.

This means complex matching, pricing and routing algorithms that have been developed for almost a decade. It's also about working with regulations at the city level and building a reliable labor force of contractors to supply the marketplace in every new city before the launch date.

There is so many experiments and tweaks to ensure that both supply and demand side remain properly incentivized, not to mentioned fighting deeply entrenched Taxi companies from city to city, that I'm surprised Uber and Lyft have gone to IPO so quickly, other than for cash raising.

I disagree. http://www.rideaustin.com/ was launched in Austin a couple years ago when Uber and Lyft were temporarily kicked out of the city. The app had some growing pains but now I use them whenever I can in preference to Uber and Lyft because they pay their drivers more. If Uber and Lyft suddenly went away Ride<CityName> could easily pop up all over.

Of course, Uber and Lyft right now ARE so big because of all the advantages you mention, but a lot of that is still due to boatloads of VC money that allow them to operate unprofitably.

How is that a counterexample when they started when Uber and Lyft couldn't operate? Are there examples of local services that sprouted up and had to compete with Uber and Lyft and got off the ground?

You are implying an argument I did not make. I was replying to the statement "The cost of entry into this space is much greater than I think most people realize. It's not "building an app". It's building a balanced, efficient marketplace." My point is that building a balanced, efficient marketplace is actually not that difficult. The fact that Uber and Lyft can kill the competition now by burning through multiple billions in VC funding is irrelevant to that.

In the end, I think the ride-sharing business will look a lot like the airlines: lots of people traveling, but not a particularly great business.

Most of the "cost of entry" - building the marketplace, approval from government etc - has already been paid by the earlier players.

No one can compete with Lyft and Uber because the latter are heavily subsidized - effectively providing $2 of service for $1 of revenue. Once they run out of runway - and the self-driving pipe dream hasn’t yet materialized - we’ll see a real competitive market emerge in the ridesharing industry.

Somewhat ironically, one of the few cases where increased competition will not coincide with better prices for the consumer.

Yes, Brazil/South America have 99Taxi and Cabify, although most drivers and users have 2 or 3 apps and switch around depending on promotions, price of a specific route, etc.

A service that exists in one city, (and can't even keep their appstore rating above 4 stars in that city) is not a good comparison.

Yes, they are. I don't care whether a ride service is available in one, a dozen or three hundred locations. I care about the best option in my city, and I would bet dollars to donuts that this aligns with the market majority.

A thousand local or regional competitors are just as much an existential threat to Uber as one or two big ones.

Agree, it’s definitely possible (and rather easy) for regional competitors to enter the market. I also live in Austin and when Uber and Lyft left I switched to Fasten and Ride Austin with absolutely no difference to the end user experience. If someone else came along at a significant discount to Uber and Lyft I would switch in a heartbeat. I often converse with drivers about it and they have the exact same approach. Whoever pays the most for them gets their business, whoever charges the least gets the rider business. Ride sharing is basically a commodity right now and anyone who thinks otherwise and invests accordingly is going to get burned. The only thing that is going to change that IMO is autonomous vehicles.

> Ride sharing is basically a commodity right now and anyone who thinks otherwise and invests accordingly is going to get burned. The only thing that is going to change that IMO is autonomous vehicles.

TBH, I think that the autonomous vehicles is just a further illustration of the extent to which it's a commodity. To an approximation, the product is that you got from point A to point B for $dollars in #time. If you can get that sorted out, people will barely even care if the service is provided by JohnnyCab from Total Recall.

It's exactly the same economics as govern airlines, which are famously the last place you put your money if you're trying to turn it into more money. There's some room for differentiation based on quality of service, but it's proportional to the product of the percentage of people who aren't spending their own money and the percentage of companies whose operations departments are on the ball.

You speak truth, but the weird reality that we live in seems to dictate that the first mover advantage in autonomous vehicle world suggests that the people who are able to bring this reality forward will own the space for at least a year or two. It’s an exciting time to be alive and witness this at least.

So is the cost of entry for an airline. Yet, it is a very competitive business.

The cost of entry might be higher than other spaces but I think automating those aspects will become cheaper and easier to do over time. Actually the cost of entry being high seems like a good reason to go public "so quickly", atleast to me. I don't see any other ride sharing IPOs happening anytime soon and investors are desperate to buy into the concept of a stable active marketplace as a product.

It's a big cost if you and I want to get in on it but probably not that great for a tech giant to invest a couple billion and skip the pre sdc years.

similar apps have popped up in many places where uber is not allowed or limited. it doesn't look that hard.

> "where uber is not allowed or limited"

Doesn't that strengthen the argument for the network effect? The only places there have been successful 3rd party launches are in markets without Uber or Lyft, where there is no network effect to compete against.

Those markets are also lacking tons of cash to literally buy the market. And those competitors easily develop their own network effects. It doesnt look like there is huge lock in here, of the scale of e.g. facebook. There is a case to be made that uber is replaceable.

Their falling growth is the biggest concern for investors.

2016-7: 100% revenue growth, 105% trips, 51% MAPC 2017-8: 40% revenue growth, 40% trips, 33% MAPC (MAPC = active users)

These are sharp drops in the growth rate.

The quarterly revenue data is more worrying - December Quarter 2018 was up only 22% over the previous year. (Page 121) On Page 126 we see that even that revenue increase was subsidised by excess driver incentives, and netting that out the growth was only 17% year on year.

They have tightened things and their adjusted yearly EBITDA loss fell by $800m to $1.65 billion, but has this come at the expense of growth? Or has the growth simply become too expensive to chase? Or are electric mobility devices taking away the shorter distance rides?

And they had a loss of $890 million in the last quarter, and it's hard to see tangible evidence of margin improvement. (P128)

A valuation today of, say, $100 million needs to have net income of, say, $10 billion to be a very real probability relatively soon, or of one much larger later.

At, say, a 20% net margin and 40% growth $10 billion income would take 5 years. But that is a courageous assumption about the growth rate, given the above, and it also assumes significant margin improvement, which will be hard if the marketing spend continues, which itself is required for growth. And pricing is hard because increased prices simply move customers onto other platforms. This is not a winner take all market.

For the model to work Uber Eats growth needs to be maintained for a while, and that's possibility, although I suspect their margins will be sharply squeezed as big brand chains respond. (e.g with Mobi2Go and 3rd party delivery agencies they can roll their own)

Interesting S-1. I was actually kinda bearish on Uber in terms of scale for future growth/profit opportunities, compared to Lyft, but now I feel like Uber has the upper hand.

Yes, profitability is a big piece, but Uber is more diversified, in that they have other rev streams - Food Delivery and Freight, which they are ramping up (Focused on growth for now).

Also, by way of partnerships/equity, they have stakes in a lot of different market leaders in other markets/geographies. These companies are further diversified in terms of other rev streams (payments, commerce, food delivery etc).

Not sure how much of that is captured in the valuation.

SDCs (L5) are definitely a ways off in terms of becoming ubiquitous. Companies are doing fixed route or city/geo-fenced testing and for any of these companies to actually get to Uber's scale will take a long time and maybe Uber can acquire/partner with one/more of these before that happens.

Also, if we consider ride sharing as a commodity, Uber benefits from economies of scale as opposed to other competitors who may operate in smaller regions/markets so that's also going in their favor.

All of this is to say, they are definitely focusing on growth for now (which there is a lot of opportunity for), but at a certain point they could probably start becoming profitable by either reducing costs or ramping up prices (in tiny percentages) and still be better than the alternative.

Wow those are some heavy risk disclosures:

We have incurred significant losses since inception, including in the United States and other major markets. We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability.

Our business would be adversely affected if Drivers were classified as employees instead of independent contractors.

If we are unable to attract or maintain a critical mass of Drivers, consumers, restaurants, shippers, and carriers, whether as a result of competition or other factors, our platform will become less appealing to platform users.

We may fail to develop and successfully commercialize autonomous vehicle technologies and expect that our competitors will develop such technologies before us, and such technologies may fail to perform as expected, or may be inferior to those developed by our competitors.

eh, those are more CYA than anything. Yes, these are risks, but thats in plain sight. Its about disclosing all the ways you could fail, however obvious, to avoid a lawsuit. There are lots of scary statements like that in most financials.

Yes, but...they are all not even all that unlikely, in this case. This looks to me like "IPO now because this is as good as it will ever get".

Just a brief scan and it looks much healthier and diversified than Lyft. Of course far from a perfect business or anything. Their revenue is 5X Lyft's revenue. Doesn't look good for Lyft's stock to be honest.

I wouldn't be surprised if after their first earnings release, Lyft stock goes below 40 USD.

Really? The numbers look horrible to me. Both LYFT/UBER have horrible numbers. I would prefer LYFT(@80% discount to IPO price) than UBER(@80% discount to IPO price).

Both of these stock valuations are being pumped and dumped onto public markets with clever tricks. Funny thing is, many of us won't even realize that some of our money will be invested in these stocks without our knowledge(ETFs/Funds tracking indices). Most 401ks market tracking Funds/ETFs will pick up these horrible stocks in time.

Tech wizards of silicon valley have managed to one-up wall street this time, by creating a 100B taxi app. With the 10B they raise from IPO, they will try more desperate measures to try and close the gap in price($100B-$120B) and value($25B-$35B).

I mean. Objectively speaking and valuation aside, Uber's numbers are better than Lyft's. Unlike you, I would much rather take Uber over Lyft, given how extremely siloed is Lyft's market. 1.63 billion from Uber Eats is not a minor number and definitely a contrasting number that shows that at least Uber is trying to position itself as a logistics company instead of a mobility company, which really doesn't make sense (mobility is an abstract concept that I think can't be definied as an industry).

I honestly don't like either. But a plain analysis makes Uber more attractive by far.

> ... at least Uber is trying to position itself as a logistics company instead of a mobility company, which really doesn't make sense (mobility is an abstract concept that I think can't be definied as an industry).

Logistics: conveying goods;

Mobility: conveying people;

Uber is both and more. Those sectors are too small for their ambitions -- essentially they think they are in the transportation business which encompasses logistics, mobility and more.

Surely you'll have heard of Uber Elevate [0] which is a flying taxi service to augment urban mobility and of course there is Uber Freight [1], a haulage business that was supposed to benefit from their Otto acquisition, which built self-driving trucks.

[0]: https://www.uber.com/us/en/elevate/

[1]: https://www.uberfreight.com/

Depending on the voting structure of shares, many funds will pass over a company. SNAP, for example, is only in 20-some ETFs: https://www.etfchannel.com/finder/?a=etfsholding&symbol=SNAP

Most people investing in Mutual Funds and ETFs aren't getting exposure to SNAP. That may be the case with LYFT and Uber as well.

It's the case of SNAP and LYFT because they have ownership structures which don't allow mutual funds to invest in them. Uber has a normal structure; any fund that mirrors the market will purchase the stock.


> Back in 2017, the private ride-hailing company got rid of its dual-class voting structure that had enabled its previous CEO, Travis Kalanick, to make a lot of bad decisions.

What an interesting takeaway. Certainly bodes well for the average Uber investor, but really it only happened because of Travis.

Thanks for that link. FB has a dual-class structure, but its owned by all major ETFs: https://www.etfchannel.com/etfs/?symbol=FB

If UBER gets into indices, that would be scamming hard earned 401k dollars of unsuspecting ordinary folks. Sigh... More hate for Silicon Valley when folks figure out

Mutual fund and ETF investors have historically done quite well with FB.

I'm starting to believe this is how all of these IPOs are getting funded. No sane dilligent investor would be willingly investing in these stocks. Almost entire funding therefore must come from indices which in turn are funded by unsuspecting 401K, state pension funds, educational endowments like accounts. There was a book called Modern Tycoons which had term for these accounts, something like "global river of money". Given how indices are now leveraged for automated funding of IPOs, we would soon be back to stock cherry picking it seems.

What if you short the stock by the equivalent ETF holding amount. Not sure the math is right, but assuming you have an s&p500 ETF, and s&p500 has 23.7T in market cap and Uber is 100 billion, then they represent something like 0.4% of the s&p500. So for every 10k you have invested, short by 40 dollars worth of Uber stock. If uber stock drops, your ETF drops but your shorts gain and vis-versa.

FYI I'm not even sure if what I'm saying even makes any sense or is realistic to do.

They did really well with the CEO they recruited. From the outside, it seemed like he did a really exceptional job profitably growing Expedia.

When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

                        --- Warren Buffett
Expedia makes money from advertising (12%), from bookings fees, and from buying blocks of hotel rooms at a discount then selling them for higher prices to their customers (66%). [1]

All of these revenue models are something that is pretty obvious how you make money at. And all of them are very different than crowd-sourcing rides for which it is not clear that the market prices is higher than the cost of providing the ride.

[1] https://www.fool.com/investing/2017/08/28/how-expedia-makes-...

To further your second point. A whole cottage industry has sprung up around AirBnB. To me this indicates that the business model for AirBnB is working. There is no similar thing happening w/ uber. Seems to just be a question of who (uber or the drivers) is going to absorb the losses.

Most importantly he hasn't had a single negative mention since he took over. the company had a couple bad things disclosed that were holdovers from the old regime, but none of it was his as far as we know. he also hasn't had any seriously positive news, but for uber no news is good news.

> it seemed like he did a really exceptional job profitably growing Expedia.

Expedia comes a distant second Booking Holdings. https://finance.yahoo.com/quotes/EXPE,BKNG/view/v1

So while he may have done well, he didn't do as well as the competition.

but did he grow Expedia's marketshare relative to its competitors?

Just looked at it... wow LYFT is losing ~1% value each day adjusting for S&P variations.

As always, the most interesting place to start is "Risks to our business": https://www.sec.gov/Archives/edgar/data/1543151/000119312519...

"Our business would be adversely affected if Drivers were classified as employees instead of independent contractors."

They're upfront about it at the least.

Yeah the SEC force them to be brutally honest.

"We have previously received a high degree of negative media coverage around the world, which has adversely affected our brand and reputation and fueled distrust of our company. In 2017, the #DeleteUber campaign prompted hundreds of thousands of consumers to stop using our platform within days. Subsequently, our reputation was further harmed when an employee published a blog post alleging, among other things, that we had a toxic culture and that certain sexual harassment and discriminatory practices occurred in our workplace. Shortly thereafter, we had a number of highly publicized events and allegations, including investigations related to a software tool allegedly designed to evade and deceive authorities, a high-profile lawsuit filed against us by Waymo, and our disclosure of a data security breach."

Just like the WWE’s designation of their employees as contractors. SDC could make the point moot , but this is a salient workers rights issue that politicians have not picked up on.

"We have incurred significant losses since inception, including in the United States and other major markets. We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability."

"We have incurred significant losses since inception and may never achieve profitability" is pretty standard in S-1s. Nothing particularly interesting in these sentences.

This exact comment chain seemingly occurs in every S1 post.

A long time ago, in a galaxy far far away, companies going public used to already make at least _some_ money...

Zoom is a profitable company that plans to IPO this year: "Zoom has the very rare and valuable financial profile -- it's growing at over 100% a year and it's profitable" [1], they're not extinct!

[1] https://www.forbes.com/sites/petercohan/2019/04/11/zoom-has-...

A more civilized age.

And with the S-1s coming at increasing frequency for the next several months, I expect this will be repeated many times

Really? Silicon Valley is churning out trashy IPOs of late, and so it becomes the standard?

It was the same thing 20 years ago, so why not now, too?

in silicon valley S-1s.

One of the highlighted risks:

> Maintaining and enhancing our brand and reputation is critical to our business prospects. We have previously received significant media coverage and negative publicity, particularly in 2017, regarding our brand and reputation, and failure to rehabilitate our brand and reputation will cause our business to suffer.

In detail, they state:

> Our brand and reputation might also be harmed by events outside of our control. For example, we faced negative press related to suicides of taxi drivers in New York City reportedly related to the impact of ridesharing on the taxi cab industry.

Yikes, I never heard about that until reading it now. I could totally see how some people may have placed the bulk of their money into a NYC Taxi medallion, which have more than halved in value since 2015. https://qph.fs.quoracdn.net/main-qimg-a9d6f8a78e9c6e899cd886...

"We have incurred significant losses since inception, including in the United States and other major markets. We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability."

We have incurred significant losses since inception. We incurred operating losses of $4.0 billion and $3.0 billion in the years ended December 31, 2017 and 2018, and as of December 31, 2018, we had an accumulated deficit of $7.9 billion.

  Revenue: $11.2BB (2018)  $7.9BB (2017)   $3.8BB (2016)
  Growth:    3.3BB          4.1
  NetInc:    1.0BB         -4.0            -0.3

But net income buoyed by Other income (expense), net [0]:

  Other:   $4.99BB (2018) -0.02BB (2017)  $0.14BB (2016)

What is that $4.99BB "Other" income?

[0]: Includes gain on divestiture of $3,214BB, plus unrealized gain on investments of $1,996BB.

(edit, format)

I think it's the investment round in which SoftBank invested around $3.5 billion.

Dont mix up cash flow from financing activities with profit from sale of operational piece of the business ;). One is just a cash flow/balance sheet piece the other gets reflected in income ;)

Yeah, it's always a fun read for grumbling grognards like me. Pretty standard stuff, except I don't think I've seen a company call out its own culture as a risk factor before.

I love starting there - this one is pages 25-72!

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