UBER - Uber Technologies

[DTEJD1997]

 

 

AJC, you really think that at this point UBER has the potential to be a 10 bagger in the next 3, 5, 10 years?  At any point?  That UBER is eventually going to be a $750BB or $800BB company? 

 

What will their future earnings have to be at that point to justify that valuation?

 

What level of sales/revenue will they have to have to produce those earnings?

 

They are losing money now.  They are going to be losing money in the near & intermediate future.  You think if they can go from a $1BB loss per quarter to only $500mm that is a "win"?

 

I've seen this before, happened during the internet boom.  Almost every analyst was talking about "eyeballs & mindshare".  Profitability didn't matter, it is the internet!  It is different this time! 

 

Finally, you are skeptical about the quality of due diligence & analysis of other posters on the board? You are posting pictures of cats?  I'm calling you out.  Keep that #$@#%$ on the Yahoo discussion boards.

 

 

 

Uber has 110 million users already in 2019 and is growing its user base at 20%+ annually. They should reach 400 million to 500 million users by 2030. Assuming far slower 10% annual user growth for the sake of argument, they would still get to roughly 300 million riders. We already know car owners in the US spend $6000 per year on a vehicle at today's prices, so with ubiquitous coverage Uber could offer a $500 per month transport subscription by 2030. Consumers probably also spend another $2000 per year on takeout and restaurants, which Uber Eats can supply. Using the conservative 300 million user number and assuming 150 million of them live in the developed world, then Uber's gross sales for those countries would be 150M x $8000, or $1.2T annually. Their 20% take rate by 2030, would result in net developed world revenues of $240B per year.

 

The other 150 million users who live in the developing world might only spend $2000 annually on Uber and Uber Eats combined by 2030. That results in gross sales of $300B, which is $60B of additional net revenue. Uber would have total global net revenue of $300B. Using companies like eBay or Cisco as comps, you get 20%+ operating margins. Uber generates operating income of $60B+ in that scenario. eBay currently trades at 3.3x sales, Cisco at 5x sales, and Alphabet (similar operating margins) trades at 5.5x sales. eBay is 24 years old, Cisco 34, and Alphabet 21. Uber will be 21 years old by 2030. Assuming a 4x sales multiple, it will have a $1.2T market cap as opposed to the current $70B+ one.

 

They also own 15% of Didi (the Uber of China) and 23% of Grab (the Uber of ASEAN). Those could well become trillion dollar companies by 2030, given their current trajectories. These stakes mean another potential $300B+ in market cap to add to Uber's $1.2T. That's a potential 20-bagger in total and is all calculated on the basis of an Uber growth path that is dramatically lower than what they're currently achieving. It also values their Freight business at zero, even though it's already a leader in a $600B industry (https://www.joc.com/technology/convoy-and-uber-freight-take-us-truck-brokerage_20180208.html), and includes their autonomous vehicle program plus digital wallet and fintech businesses as free options (https://www.cnbc.com/2019/06/10/uber-is-making-a-push-in-financial-products-with-new-york-hiring-spree.html).

 

Your characterization of my '$500M' comment is more a reflection of your willingness to comprehend, rather than anything else. I've shown on this thread how starting from next year you will get EVs that are built for ride-sharing (eg. the Bolt Nano for $10000) and that the cost and economics will begin to make a lot more sense for drivers. I've also explained there will likely be more than enough EV options on price and battery range by 2025, so both Uber and its drivers can operate profitably without any fee changes. My use of the $500M and lower numbers was to show that Uber only needs to have cash until 2025, or sooner, for the economics to be working well for all stakeholders based on what we already know today.

 

Your knowledge of consumer tech and the internet seems extremely superficial. It also sounds like you have very little understanding about how the mobile internet allows for this generation of tech companies to be far bigger than those of the Dotcom era. I've seen your negative comments on the Amazon, eBay, and Facebook threads over the years. Your bearish sentiments have been wrong on all three businesses, and unfortunately seem like nothing more than mixing up personal gripes with a genuinely objective investment perspective. Your entire angle on these companies seems to be that because you or your friends had a few bad experiences or hold some cynical opinions on the business, therefore they're not worth betting on.

 

That comparison of yours to the Dotcom era lacks nuance. I also lived through that mania and saw what went on. The vast majority of internet stocks then had no revenue model. Online advertising wasn't even a proven approach at the time. Uber, Airbnb, and others, are on the other hand, selling something which people are already used to paying lots of money for. In that sense, the era's have vital differences. On top of that, the average company IPOed at 3 or 4 years old back then. Today, that's closer to 10 years old. While that does mean you miss out on the exponential early growth years, it also means the private markets are where many of the crappy companies now end up dying so they never make it out the IPO gate.

 

In other words, it's the surviving companies that are now going public and on average they have far better business models and more reliable unit economics than 1999/2000. Yes, P/S multiples are definitely bubbly currently in the tech IPO market (as I've noted numerous times in this thread), but there are key differences at the fundamental level that make many of the companies qualitatively better businesses than those of the Dotcom era (even though there are undoubtedly also still plenty of culty and faddish unicorns around today too). I think people should be pretty defensively positioned in this sector right now, but to say that Uber should be lumped in with a bunch of "eyeballs & mindshare" companies is gobbledygook.

 

When VCs realized a person spends $6000 per year on a vehicle, they were willing to use billions in cash to win regional ridesharing markets. This is not early Google where the advertising model was still in question, and where even today their ARPU is only $256 annually in the US and $137 globally. When you clearly see ARPU for Uber and Eats in the US could be $1600 annually and $400 in the developing world, then you go big in order to dominate that market. So the idea that Uber is just burning cash and after that they'll go bankrupt, doesn't scratch beneath the surface. What's more likely happening is they're spending incentives of $50 or so per user and $1000 per driver in order to get people habituated while EVs and micromobility take over as their primary mobility preference, and while they bundle their services (https://techcrunch.com/2019/06/04/uber-eats-uber-eats/) and create a subscription offering that gives rewards to those who use the service the most frequently and loyally.

 

20 000 Jump bikes, like they were willing to put into Chicago, is also $10M at $500 a pop. If you're expanding e-bikes to 50 cities a year, that adds up. Incentive spending adds up too, if you're offering millions of people in new cities $50 each. Setting up Uber Eats in new geographies is also not free, but you can see the results in their revenue growth for that vertical. On the other hand, if developed world users have an ARPU of $1600 and rest of world users $400, then it could well make total sense to get them habituated if it only costs you $50 or so per user to bring on many regulars. All things being equal, it's about the CAC/LTV working out and being sensible, not the absolute number you're currently investing in growth. In other words, given that $1 spent by Uber now via incentives might add up to $30 or more in annual revenue, somewhere not far down the road, it's not crazy that they're currently spending billions of dollars per year in order to reach even more users and cities so they can cement the regional dominance of their product offerings.

 

Finally, stylistically I've attached one meme image on average for every two hundred and fifty of my posts on this board. You've WRITTEN the majority of your 1500+ posts CAPITALIZING random words for emphasis like an ATTENTION-SEEKING pamphleteer, and in the PROCESS shown the forum how LITTLE you respect standard internet ETIQUETTE norms yourself. As a result, your career obtuse posting numbers leave us all in the dust and mean you're in no position to be throwing criticisms around. Feel free to save your hypocrisy and lack of introspection for someone who thinks your opinions on the topic are worth something. Alternatively, you could always focus that energy on actually reading the S-1 and doing some basic research on Uber and the ridesharing industry.

AJC:

 

OK, I'll guess we'll just have to disagree.  Maybe you are right and Uber is going to be making tons of cash in the future!

 

One final thing...When you are at the poker table, you should be able to figure out who the mark(s) is/are within an hour or so.  Can't do so?  Then you are the mark.

[peterHK]

All I ever hear about Uber is TAM TAM TAM.

 

1) How much of that TAM is actually addressable with ROIC > WACC?

 

2) If they can't make money at the current scale they're at, when are they going to make it AND how much are they really going to make? It's not like they've got 90% gross margins to invest behind, they're at 35%.

 

 

[Guest ajc]

 

 

AJC:

 

OK, I'll guess we'll just have to disagree.  Maybe you are right and Uber is going to be making tons of cash in the future!

 

One final thing...When you are at the poker table, you should be able to figure out who the mark(s) is/are within an hour or so.  Can't do so?  Then you are the mark.

 

 

 

I think you don't have an informed-enough understanding of Uber's specific business and market potential at all, from an investment perspective. However, I generally agree that most recent tech IPOs are now trading at crazy valuations and within 12 (or a maximum of 18) months, we'll probably see a huge correction or complete crash in their prices. Uber shares would be impacted by that, like all the other stocks in the sector.

 

I've already sold 1/3rd of my Uber stake (bought at $38 per share), when it went up to $44. I will perhaps sell another 1/3rd or likely the whole of my position, sometime over the next year (hopefully at somewhere closer to $50+ per share). After that, I'll wait to buy in cheaper while this whole current tech IPO euphoria has had time to become significantly deflated.

 

 

[NBL0303]

 

I generally agree that most recent tech IPOs are now trading at crazy valuations and within 12 (or a maximum of 18) months, we'll probably see a huge correction or complete crash in their prices.

 

 

AJC - good thoughts. Just curious, why a maximum of 18 months? Why can't it go on longer than that? Also, are you worried the tech crash you are talking about will happen in 3 months or 6 months and hit your Uber position before you have a chance to sell the other 2/3rds of it? I'm just interested in hearing your thoughts on the specifics of the timing issues.

[Guest ajc]

 

 

AJC - good thoughts. Just curious, why a maximum of 18 months? Why can't it go on longer than that? Also, are you worried the tech crash you are talking about will happen in 3 months or 6 months and hit your Uber position before you have a chance to sell the other 2/3rds of it? I'm just interested in hearing your thoughts on the specifics of the timing issues.

 

 

 

NBL0303, the 'sometime over the next year' line was my way of trying to indicate a flexible approach towards the issues you're raising. My current thinking is there are many signs of things getting truly bubbly. 18 months to my mind is a very optimistic scenario. I wrote a few months ago about how things were really overvalued in the tech IPO sector (https://twitter.com/tonyjclayton/status/1118205158721249280), and things have only gotten worse since. Over the last two months, it has basically become standard for any hot new issue to get at least a 50% first day pop. The only other time where tech IPO valuations and first day returns were this high and this widespread was 1998 and 1999. In other words, my working thesis is we're somewhere in that area.

 

If we're earlyish in 1998, then we could potentially get another 18 months of this stuff to the point where the IPO market doesn't just look euphoric, but feels that way to every participant inside and out. Then you'll see news stories being run each week about the new millionaire who quit his/her job after only 6 months in the market. About the couple who sold their home to trade hot tech stocks and are now up 1000%. When everyone gets swept up in the mania (including the TV networks) and buys fully into the hype, that's when the collapse is only moments away. One thing that makes me think this could be worse than the Dotcom boom, is that today interest rates are far lower so stock multiples could theoretically get even more stratospheric.

 

My sense is we're either starting to see this final phase of insanity unfold, or we're somewhere in the middle of it. Where M&A activity starts to genuinely rip and massive industry-changing deals happen every few weeks, where hot IPOs (Beyond Meat, Zoom, Pagerduty) start to go on big runs, and where the business quality of listings (WeWork, Peloton, etc) starts to become a hell of a lot more questionable even by modern Silicon Valley standards. The reason I think for now that there's maybe up to 12 months left, is usually unemployment ticks up before a downturn and after yield curve inversions you also tend to have some time (see the recent tweets by

on this). I think there are also a few tech IPOs that are potentially bigger than Uber which still badly need to get to market (Bytedance, Didi, Airbnb), so that could keep the craziness getting even more crazy as well.

 

I've posted some charts below that help explain why I'm between very and extremely cautious going forward. So yes, I'd undoubtedly be willing to exit my position in the next 3 to 6 months (or next week), if I saw strong indications or new information that said things had deteriorated way quicker than I was expecting. I'm holding much more cash currently than at any time since 2010. For now though, my guesstimate is we could see one final and genuinely insane move upward. That is merely my personal suspicion as of today though, and I might well change my mind tomorrow. Either way, I'm on full alert.

 

[Guest ajc]

 

I sold most of my Uber holdings and have consciously uncoupled from the stock (in a loving way, of course). I ask that my privacy be respected during this extremely difficult and emotional time.

Reasoning here - https://twitter.com/tonyjclayton/status/1142741798554624000

 

PS. I still like the business, but the current tech IPO market is a little cray cray.

 

 

[NBL0303]

Thank you ajc - I always learn from your thoughtful and interesting posts.

[Guest ajc]

 

 

Thank you ajc - I always learn from your thoughtful and interesting posts.

 

 

 

Sure thing. Likewise.

 

 

[DTEJD1997]

Hey all:

 

UBER reported earnings the other day.

 

Surprisingly, they reported a loss.  A loss of epic proportions, about $5BB.

 

To be fair to the company, a good chunk of that loss was due to stock/options expense.  The operating loss was only about $1.3BB.

 

The chattering class of analysts though was dismayed as the company gave no indication of when/if they will actually make money.  A brilliant analyst also said "A loss of $5BB does not sound good".

 

Sales appear to be slowing down.

 

Oh well, when the self driving Tesla cars come out, and owners put them to work driving at night, that will provide a massive boost in sales/earnings to Uber.

[UK]

https://www.wsj.com/articles/california-fostered-americas-tech-industry-it-is-becoming-a-great-adversary-11565532002

 

“When you hear about folks talking about the new economy, the gig economy, the innovation economy,” Mr. Rendon said into a mic, waving his hands up and down, “it’s f—king feudalism all over again."

 

:)

[DTEJD1997]

Hey all:

 

In a simply stunning development, UBER announced the unpossible and posted another large loss today.  They posted a loss of $1.16BB

 

Analysts are simply stunned and are now calling into question UBER's business model.

 

Even though UBER's revenue grew, so did it's loss.

 

Stock is down in after hours trading.

 

How could this have happened?

[Spekulatius]

Uber lockup is expiring today. Have fun!

[writser]

Travis opens the ball. Sold 20m shares worth half a billion and change in three days. What a shitshow.

[DTEJD1997]

Travis opens the ball. Sold 20m shares worth half a billion and change in three days. What a shitshow.

 

whut, Whut, WHUT?

 

I am sure this was part of the business plan.  The business plan is to come up with an idea, get everybody talking/using about it.  Then you go public, then you sell out to bag holders.  Wash rinse repeat.

 

Did I just hear a bell ring?

[SharperDingaan]

If you have the capacity to take on risk ... this would be a really good time.

 

YOY impacts have begun to overwhelm growth, which is also slowing down. Growing, future losses.

Lock-up sales overwhelming share demand, forcing price down - before help from the option market ....

Restaurants (Uber Eats) were only there because they had to be. Less hype and they leave, producing plunging metrics.

Rising odds of material write-offs (capitalized costs) as business declines. Big, and more frequent earnings misses.

And rising market toxicity, with every unicorn's adverse headline, contracting multiples on declining forward EPS.

 

Feeling lucky  ;)

 

SD

 

[DTEJD1997]

hey all:

 

Here is an interesting article on meal delivery services.  Uber Eats is prominently featured:

 

https://www.zerohedge.com/markets/meals-broken-wheels-uber-eats-grubhub-doordash-postmates

 

Article makes a pretty convincing case that there is no viable business model in the meal delivery services.

 

The article makes a lot of good observations & points.  HOWEVER, if pizza can be profitably delivered, could other forms of food also be profitable?  Perhaps?  I seriously doubt that McDonald's and Burger King and such will prove to be profitable in the long run.  No money to be made on $5 deliveries.

 

Move up to a "fast casual" restaurant, say something with $12-$18 plates might be something else entirely.  Especially if the average delivery has MORE than one meal delivered?

 

So perhaps the current model is broken and won't pan out, but maybe something else entirely will come out of this?

[villainx]

I was under the impression for a shift to industrial takeout production of some sort as the meal delivery service additional answer to driverless.  Some restaurants leverage their brands to just have meal delivery cooking locations to keep cost low and just throw out the hits for delivery. 

 

I feel that's ridiculous but seems like the buzz. 

 

 

[JRM]

hey all:

 

Here is an interesting article on meal delivery services.  Uber Eats is prominently featured:

 

https://www.zerohedge.com/markets/meals-broken-wheels-uber-eats-grubhub-doordash-postmates

 

Article makes a pretty convincing case that there is no viable business model in the meal delivery services.

 

The article makes a lot of good observations & points.  HOWEVER, if pizza can be profitably delivered, could other forms of food also be profitable?  Perhaps?  I seriously doubt that McDonald's and Burger King and such will prove to be profitable in the long run.  No money to be made on $5 deliveries.

 

Move up to a "fast casual" restaurant, say something with $12-$18 plates might be something else entirely.  Especially if the average delivery has MORE than one meal delivered?

 

So perhaps the current model is broken and won't pan out, but maybe something else entirely will come out of this?

 

Pizza is an anomaly.  Most food items at restaurants are very low margin; the money is made on appetizers, desserts, and beverages.  Pizza is the exception.  Pizza has some pretty decent margins.  So do chicken wings.

[Jurgis]

Restaurant food delivery was there before Grubhub/UberEats/etc. I'm sure it will be there even if any of these disappear. Maybe not for marginal $5 deliveries... but I think some people here forget that restaurants can have minimum orders and charge delivery fees. At least on Grubhub. Not sure about UberEats - have not used that yet.

[DTEJD1997]

Hey all:

 

The news is all atwitter that UBER has lost it's license to operate in London.  Looks like UBER is down $1,50 in pre-market trading and is below $30/share.

 

London is UBER's largest city in Europe.

 

Going to be an interesting day!

[AzCactus]

I know that Uber is probably down because of the ongoing situation here.  However, their food business is probably improved.  And long term people will still (probably) be using Uber.  Anyone else thinking of nibbling here?

[chrispy]

Uber is pushing phone notifications to me each day stating local deliveries have $0 fee.  Dont have anything else to add, just my current experience

[Kaegi2011]

Uber is pushing phone notifications to me each day stating local deliveries have $0 fee.  Dont have anything else to add, just my current experience

 

Jeez... either Uber is "investing" a boatload or the merchants are taking a bath. 

[johnny]

Would make sense for them at this point--there is a lot of idle driver capacity out there (so I imagine their costs on that side are okay), and this is a great way of making their value proposition clear.

 

AFAIK, they are not reducing their revenue-share on the restaurant side.

[Liberty]

Writeup on Uber:

 

https://mbi-deepdives.com/deep-dive-on-uber/