A Speech by Two IPOs
The two dominant ridesharing companies have recently renewed: Uber Technologies, Inc. (UBER) on the New York Stock Exchange and Lyft, Inc. (LYFT) on Nasdaq. Both shares have gone bad since their public trading began. With the latest trading tensions leading the markets significantly lower, the IPO times have not been ideal. Lyft's business is focused in the United States, with some operations done in Canada, while Uber operates in 63 countries around the world. However, a closer look at SEC filings from both companies shows that it is real to be cautious about the future of these companies and their expensive values.
Lifting – Next largest loss at the start of the year before its IPO
Lifting bearing has lost almost half its value since high on its first trading day on March 29. There were massive sales during the first few days after the IPO and after a short recovery period, sales resumed. From the beginning of mid-April to the profit dividend, the stock exchange was mostly traded sideways, only to sell after the latest quarterly loss of $ 9.02 per share announced after the market on May 7. The weakness of the trading market and the nasty development of Uber IPO may have helped fuel to further give negative stock market feelings.
Look at the following quarterly reports, we can see that Lyft really grows revenues. A short-term investigation of the following data can lead to a rather hasty perspective on the company's growth. Revenue from tax rate 2019 Q1 shows an increase of 95% and an increase of 16% quarterly. However, Lyft consistently shows large net losses and leads to an adjusted EBITDA loss of $ 270-280 million for Q2 2019 of $ 800-810 million of revenue.
(Source: LIFT S-1)
(Source: LYFT 8-K)
(Source: LIFT S-1) 1)
This type of growth can look attractive if there was some form of clear path to profitability in the future. But with Lyft, it just seems to be hopes of different and risky ventures such as scooter and bicycle rental and autonomous taxis. There seems to be no real plan for transition to profitability for the company's core business, just a plan for continued rapid expansion. It is possible that much of Lyft's growth has come from poaching customers and drivers outside Uber through competitive pricing and driver incentive programs. Lifting rideshare market share increased from 22% in December 2016 to 39% in December 2018. The company has previously offered drivers attractive one-time bonuses to sign up for the ridesharing program, along with promotional events like rider rider discounts. This type of expansion and war solution with Uber does not look sustainable.
The double-share concentration of the LIFT share concentrates the power of voice in the hands of co-founders Logan Green and John Zimmer. This only reinforces my confidence in the company with its current strategic direction.
I think the company puts it fine in the section Risk factors in S-1:
We have a history of net losses and we cannot achieve or maintain profitability in the future,
We face intense competition and can lose market shares for our competitors. "
Uber – biggest loss at a start the year before its IPO?
Uber started trading no later than Friday, May 10. After some initial purchases, the sellers took control and released the share during the opening price on the first day. and the stock market was sold together with the broader market on Monday, and on Tuesday 14 May, the share price saw some recovery after the news was released, the US National Labor Relations Board said that Uber drivers are classified as entrepreneurs, not employees, and thus have no right to the minimum wage or overtime pay.
Uber was technically profitable in 2018 as it sold its Russian business to Yandex (YNDX) and its South East Asian business to Grab (GRAB), which meant almost $ 5 billion.
(Source: Uber S-1)
This can be seen on the above statement under "Other income (costs), net" for 2018. Now this type of behavior is man want to see from a grown-up company? Selling pieces of their business? Exclusive income for this sale would leave Uber with a loss of $ 3,996 on the above statement – nearly $ 4 billion.
Even more difficult is the latest development of Uber's revenue. To get a clearer picture, we need to look at the "Core Platform Adjusted Net Revenue", which removes excessive driver incentives and driver references from the "Core Platform Revenue," as it really is cost to the company.
(Source: Uber S-1)
The above diagram shows a stall of sales development and substantially flat revenues in the last three quarters (Q2, Q3, Q4 of 2018 ). Now this is really not what you want to see from a "growth company". Although annual revenue looks positive and shows tremendous growth (2016 – $ 3.8 billion, 2017 – $ 7.9 billion, $ 2018 – $ 11.3 billion), seasonality should not be a factor in quarterly results and is not reflected in revenue performance from 2017. We get a much clearer perspective on the core business's health from the adjusted quarterly revenues from the chart above.
Margins from Uber's core business also show unhealthy fluctuations. Its margins can be under pressure from pricing lasers with rivals such as Lift.
(Source: Uber S-1)
Rivals are superfluous for Uber in every industry it chooses to expand into. Well established logistics and shipping companies such as United Parcel Service (UPS) and FedEx (FDX) and others already dominate the market that Uber Freight wants to expand to. Global expansion is threatened by foreign transport networks such as Didi Chuxing (DIDI) and Grab. Uber Eats meets many local and nationwide competitors, such as GrubHub (GRUB), Instacart (ICART), DoorDash (DOORD) and Postmates (POSTM). When the company works with a loss, it makes one wonder why it is trying to expand in several different directions instead of focusing on achieving profitability in its core business. Apparently, sales growth has decreased. Is it possible that Uber's core business will never be profitable?
Uber CEO Dara Khosrowshahi has compared the company's business model with Amazon's AMZN and noted that Amazon and Facebook shares (FB) also fought for their IPOs. Time will tell if Uber can have similar success, but the comparison seems very strained right now.
Again, some choices from the "Summary of Risk Factors" section of their S-1 ring are true:
The personal mobility, food delivery and logistics industries are highly competitive, with well-established and inexpensive alternatives that have been available for decades, low barriers for access, low overhead and well-capitalized competitors in almost all major geographical areas.
To remain competitive in some markets, we have previously been lowered and can continue to lower, prices or service fees, and we have previously offered, and can continue to offer, significant driver incentives and discounts and promotions for consumers.  We have had significant losses since its inception, including in the US and other major markets. We expect our operating costs to increase significantly in the foreseeable future, and we cannot achieve profitability.
We may fail to develop and successfully commercialize autonomous vehicle technology and expect our competitors to develop such technology before us, and such technology may fail to perform as expected or may be inferior to those developed by our competitors. "
For a comprehensive list of Uber's competitors in all industries, see pages 32 and 33 of the company's S-1 filing. Many of them
Amazon and Facebook were able to grow past early, profitable losses through to create unique services that leaned out a large niche in their markets and have been able to expand due to their dominance It is obvious that Uber and Lyft do not have the same dominance, simply because they both do the same. Lyft's ability to scale up and compete with Uber shows that the dealings of these companies have a very thorough grave
There will be a constant threat of competition and disturbances in ridesharing and wider transports, Uber and Lyft may have a beginning in some areas, but many larger technology companies like Google (GOOGL) or Amazon have a much wider pool of resources and talent to shed on solving transport issues. Tesla (TSLA) is still another serious threat and is one of the only companies to successfully deliver functional self-driving car pilot technology. Amazon's efforts to build its own logistics and delivery services show that divisions such as Uber Freight will also face fierce competition.
(Source: Lift, via Dailymail)
Much hassle has been made of scooter and bicycle rental in corporate "major city markets. I cannot see how this can be a good or sufficiently effective way Scooters are simply insecure and cannot handle small bumps and cracks on the pavement, both scooters and bicycles are vulnerable to vandalism and abuse of customers and passers-by. Your own bike (and most people who want to do so is likely to go on their own bike). Competition and alternative solutions abound.
At the end of the day, Ubers and Lyft's core businesses are very popular phone applications that connect drivers with passengers. The apps generally work well and provide GPS routing, but there is nothing revolutionary about the technology. Enlargement to sectors such as self-driving cars and air disks will take over large amounts of capital and will face fierce competition – these companies should be regarded as moonshots with little chance of success.
There is no doubt that Lyft and Uber have forever changed the taxi industry in North America and all over the world. However, this does not make its equity a reasonable investment. Investors looking for exposure to the transport industry should instead look for established and profitable companies, such as UPS, which has an attractive return of 3.87% at writing time. For exposure to cutting edge technology as autonomous vehicles, GOOGL can be a wiser venture supported by a profitable and sustainable advertising agency. What is your best idea for investing in the future of transport? Let me know in the comments.
Disclosures: I / we have no positions in any specified warehouses and no plans to initiate any positions within the next 72 hours. I wrote this article myself and it expresses my own views. I do not get compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.