Something unusual will happen Wednesday Oct 6. Uber will have the biggest lock-up expiration in history.  RBC Capital Markets analyst Mark Mahaney estimates that 1.7 billion shares will become eligible for sale, roughly 90% of the total. I’ve heard amounts half of that. Either way its a monstrous amount. If you don’t know what a lock-up is, read this primer from front running broker, Light Speed. Uber reported earnings or more accurately lack of earnings Monday after the close. Nearly every firm on Wall Street recommended buying the stock 30% higher so I supposed they will recommend it with fained enthusiasm Tuesday.  It’s a funny business. Once you’ve stepped on a giant turd instead of backing away from it, just stick your foot deeper into it.

According to the Wall St Journal, “The good news is that Uber UBER -0.92% appears to make a profit doing what it was originally meant to do. The bad news is that none of the company’s other activities can make that claim.Uber’s third-quarter results issued Monday afternoon included a more detailed look at the earnings contribution of company’s various segments. Rides, which still account for more than 80% of the company’s business, generated about $1.5 billion in adjusted earnings (EBITA)before interest, taxes, depreciation and amortization for the trailing 12-month period ended Sept. 30. The food-delivery arm known as Uber Eats lost about $1.2 billion on the same measure.”

I really hate EBITA. Since when do you not have to pay taxes, interest on the money you borrow, and are exempt from wear and tear on your home, vehicle, and business property?  I think Uber,  like many of the “hot” ideas of the new economy, is fundamentally flawed. For starters, the driver, after accounting for wear and tear on their personal vehicle and fuel costs earn less than minimum wage by some calculations.  Also Uber and Lyft and other “gig” businesses pay no unemployment, FICA, other employee costs since all of their employees are classified as independent contractors. That might work for the occasional worker in a small business but Uber is no small business.  It seems inevitable their driver costs are going up.

Second, have you noticed that Uber and Lyft are raising ride-hailing costs?  After having run taxis out of business, why not? The problem, though, is that ride-sharing is not price elastic. At some point, customers balk and use their own cars or figure out other means of transportation (hello public transportation) I listened to the CEO today on the earnings call and he said their biggest competitor is the customer’s own vehicle, not some competitors ride-sharing service.  The whole marketing pitch is that millennials won’t need their own car and Uber is disrupting that. Hmm, I’ll have to think more about that one as they raise prices.

Then there is the autonomous vehicle story.  When they do away with the driver, they will be enormously profitable idea.  Yes, in what lifetime will this happen?  And talk about an enormous investment.  They are just dipping the toe in the water. If there is anything more uncertain about the time and players, I can’t imagine what it could be.  Google might dominate ridesharing.  Hey, didn’t Uber and Google sue one another over intellectual property just a little while ago?  I personally doubt if any company will catch up with Tesla when it comes to autonomous vehicles. If Elon Musk has his way, there will be no need for Uber at all as you can just send your Model 3 out working and picking up customers and earning money while you sleep or binge on Netflix, Apple, Showtime, HBO, Comcast, Disney, etc oh that’s another investment timebomb to have fun with. Uber is far from a sure thing when it comes to autonomous vehicles.

What I don’t understand is how a business that is basically run off the backs of low paid workers and no capital investment is not already immensely profitable? But they are not- and it’s not my job to run Uber.  Bottom line, would you buy Uber before a gazillion shares are unlocked and free to trade? I know I wouldn’t. And I don’t think I’d buy it either if it goes up 11% like Facebook did when it’s massive lock-up expired.  Would I short it? You bet you.  It almost seems like it’s too good to be true. And you know what they say about that.


Source: What’s Eating Uber? – WSJ