A History of Two IPOs
The two leading carpools were recently launched on the New York Stock Exchange: Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT) on the Nasdaq. Both stocks have performed poorly since the beginning of public trading. IPO timing was not optimal given the recent tensions in the lead markets. Lyft's business is focused on the US, with a number of businesses in Canada, while Uber operates in 63 countries around the world. However, a closer look at both companies' SEC filings shows that the future of these companies and their expensive valuations are extremely worrying.
Lyft – Second largest loss of a startup in the year before its IPO
(Source: LYFT S-1)
(Source: LYFT 8-K)
(source: LYFT S-1)
This type of growth could look attractive if there were a clear path to profitability in the future. At Lyft, however, there seems to be only hope for unequal and risky bets such as scooter and bike rentals and autonomous taxis. There seems to be no real plan for a transition to profitability for the company's core business, but only a plan for continued rapid expansion. It is possible that much of Lyft's growth was due to the fact that customers and drivers were recruited by Uber's competitive pricing and driver incentive programs. Lyft's share of the market for carpooling rose from 22% in December 2016 to 39% in December 2018. Previously, the company offered riders attractive one-time rewards for sign-up for carpooling and promotional events that reduced driver rides. This type of expansion and erosion warfare with Uber does not seem sustainable.
The dual-class structure of the LYFT stock focuses voting rights in co-founders Logan Green and John Zimmer. This only further undermines my confidence in the company, given its current strategic direction.
I think the company inserts it into the "Risk Factors Summary" section of its S-1:
We have a history of net losses, and we may not be able to achieve profitability in the future or maintain;
We face intense competition and could lose market share to our competitors; "
Uber – Largest loss of a startup in the year before its IPO?
Uber started trading last Friday, May 10th After a few initial purchases, the sellers took control and fell below the opening price on the first day It was continued after-hours and the stock sold together with the broader market on Monday and on Tuesday, May 14, the share price recovered after it became known that Uber's drivers, according to the US Labor Inspectorate, were entrepreneurs and not qualifying as employees and therefore not entitled to minimum wage or overtime compensation.
Uber was technically profitable in 2018, as he sold his Russian business to Yandex (YNDX) and sold its Southeast Asian business to Grab (GRAB), earning nearly $ 5 billion.
(Source: Uber S-1)
This can be seen in the above statement under "Other income (expenses), net" for 2018. Well, is this the type of behaviors one can expect from a high-growth business? To sell parts of his business? Without the proceeds of this sale, Uber would lose nearly $ 4 billion ($ 3,996).
Even more problematic is the recent development of Uber's revenues. To get a clearer picture, we need to look at the "Core Platform Adjusted Net Revenue," which eliminates redundant driver incentives and driver referrals from core platform revenue, as it costs the business anyway.
(Source: Uber S-1)
The graph above shows that revenue growth has stalled in the last three quarters and revenue has remained essentially unchanged remained (Q2, Q3, Q4 of 2018). , That's really not what you expect from a "growth company". Although the annual sales results look positive and show huge growth (2016 – $ 3.8 billion, 2017 – $ 7.9 billion, 2018 – $ 11.3 billion), seasonal dependency should not affect these quarterly results and In the 2017 sales results, there is no apparent clearer view of the health of the core business from the adjusted quarterly net sales figures from the graph above.
The margins from Uber's core business also show unhealthy fluctuations. Profit margins could come under pressure through price wars with rivals like Lyft.
(Source: Uber S-1)
There are many rivals in every sector Uber wants to expand to. Established logistics and shipping companies such as United Parcel Service (UPS) and FedEx (FDX) and others are already dominating the market Uber Freight wants to expand into. Global expansion is threatened by foreign transportation network companies such as Didi Chuxing (DIDI) and Grave. Uats is exposed to numerous local and national competitors such as GrubHub (GRUB), Instacart (ICART), DoorDash (DOORD) and Postmates (POSTM). Since the company operates at a loss, it is wondering why it is trying to expand in different directions rather than focusing on achieving profitability in its core business. Sales growth slowed down significantly. Is it possible that Uber's core business will never be profitable?
Uber CEO Dara Khosrowshahi has compared the company's business model to that of Amazon (AMZN) and found that the shares of Amazon and Facebook (FB) also had problems after their IPO. Time will tell if Uber can achieve similar results, but the comparison seems to be very tense at the moment.
Again, certain selections from the "Summary of Risk Factors" section of his S-1 sound as follows:
Personal mobility, food delivery, and the logistics industry are highly competitive and have been providing established and cost-effective alternatives for decades, low barriers to entry, low switching costs and well-capitalized competitors in almost all major geographic regions.
In order to remain competitive in certain markets, in the past we have lowered and possibly further lowered tariffs or service charges, and in the past we have offered and may continue to offer significant driver incentives, consumer discounts and promotions.
] We have suffered significant losses since launch, including in the US and other major markets. We expect our operating costs to increase significantly in the foreseeable future, and we may not achieve profitability.
We may not develop and successfully market autonomous vehicle technologies and expect our competitors to develop such technologies ahead of us, and such technologies may not deliver the expected performance or may be inferior to our competitors.
For a full list of Uber's competitors in all business areas, see pages 32 and 33 of the company's S-1 filing. There are many of them.
Amazon and Facebook were able to get past early Losses out into profitability by creating unique services that made a big niche in their markets and could expand by their dominance It's obvious that Uber and Lyft do not have the same dominance just because they both do the same thing. The ore business of these companies is in fact very shallow.
There will be a constant threat of competition and interruptions in the ridesharing and transport business some areas have a head start, but many larger technology companies like Google (togetL) or Amazon have a much bigger one en Pool of resources and talents that you can use to solve transportation problems. Google's self-driving car unit Waymo is a direct threat to Uber and Lyft. Tesla (TSLA) is another serious threat after all its missteps and is one of the few companies to successfully offer a functioning, self-propelled autopilot technology. Amazon's efforts to build its own logistics and delivery services show that divisions such as Uber Freight will face tough competition. Older vendors such as UPS and FedEx will ensure further competition in this area.
(Source: Lyft, via Dailymail)
The companies made a fuss about scooter and bicycle rental. larger city markets. I can not see how this could potentially be a good or sufficient way to grow the business. Scooters are simply unsafe and unable to adequately handle minor bumps and cracks in the pavement. Both scooters and motorcycles are exposed to vandalism and abuse by customers and passers-by. If you want to ride a bike to work, buying a bike of your own is much better value for money (and most who would like to do that probably already ride their own bikes). Competition and alternative solutions abound.
Ultimately, Ubers and Lyft's core businesses are very popular phone apps that connect drivers with passengers. The apps generally work well and provide GPS routing, but the technology is not really revolutionary. Expansion into sectors such as self-driving cars and flying taxis will require excessive capital and fierce competition – these ventures should be viewed as lunar shots with little chance of success.
Lyft and Uber are no speech changed the taxi business in North America and worldwide. However, this does not make their equity a sound investment. Investors looking for exposure to the transportation industry should instead turn to established and profitable companies, such as UPS, which have an attractive forward-term yield of 3.87% at the time of publication. For exposure to cutting-edge technologies such as autonomous vehicles, phonetically speaking, a wiser bet can be made that is supported by a viable and sustainable advertising business. What is your best idea to invest in the future of transportation? Let me know in the comments.
Disclosure: I / we have no positions in the above stocks and no plans to open positions within the next 72 hours. I wrote this article myself and it expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose shares are mentioned in this article.