Confession: I Don’t Think Uber Is Actually a Great Business (Yet)

Right now, Uber's business model is throw so much VC money at everything that everybody else goes out of business, and hope the taxis die before you run out of VC money.

Because without above consumer benefits, people would not use Uber, and it would stand no chance whatsoever of being a profitable business.

Uber and Lyft left Austin at the beginning of the year over fingerprinting rules. Since then, there has been an explosion of smaller ride sharing companies: Fare, Fasten, GetMe, and, most interestingly, RideAustin, which is a local non profit started by Austin tech luminaries. The apps were certainly much buggier than Uber or Lyft when they started, but I recently took a Ride Austin, and the app is so similar to Uber (as was the experience), that I wonder if Ride Austin will eventually branch out into other cities, at least by licensing their tech.

The Texas lege will likely override Austin's local regulations next year, so it will be interesting to see what happens when the fingerprinting requirements go away and Uber and Lyft come back.

I'm pretty sure UberEATS must be a horrible customer experience based on the random shit I see happening at registers in places that I get food from. Stuff like the driver having no idea what the customer has ordered and just taking any old order the people behind the cash register are willing to give them. Since both ends of this transaction don't qualify as the sharpest tools in the shed, it's basically the blind leading the blind.

I get that it makes sense from Uber's point of view -- increasing driver utilization and smoothing out the supply side of the relationship is probably great for their unit economics. But they actually have to execute it well if they expect people like me to use it.

Will it? Setting aside the horserace between spending VC money to subsidize around 60% of every trip vs. the legal framework and a viable self-driving car that's for sale in large numbers, there are some real costs for Uber without drivers. For one, they need to buy the cars, which the driver does now. And maintain them - what's the TCO of an autonomous car? Well, nobody knows. Then of course there's fleet management, which Uber has zero experience in. And don't forget, Tesla and Ford have publicly indicated that they're baking sharing features into their own plans for self-driving cars, which means the platform owners will have the upper hand, while Uber plays with their little app. If that's straightforward, I'd hate to see complex :)

They're probably fine as far as they keep having the detailed life and all information of billions of people.

FB has a P/E ratio of 42, which is high.

The market assumption is that they can probably grow their /user revenues quite a lot because they're not getting that many new users.

I suggest that FB is probably a very viable, very profitable company long term, but that their stock is probably over-valued.

From an investors perspective, it may have nothing to do with the reality of underlying fundamentals - but how other investors will perceive them. Ergo - FB may still make a great investment if you think they will come out with some new shiny products to keep other investors hopped up on the juice.

Purely by the books, they are about 4x overvalued right now.

10x price/earnings is the normal place for a healthy, strong, reasonably growing company.

It's not irrelevant -- it's the same story every time, just with a different company.

The "underlying issues" are things Uber management (1) understands better than outsiders looking in; (2) they're actively working to address; and (3) they have vastly-superior metrics to understand their own internal growth rate. They want to stay private precisely for this reason: They don't want to answer whiny questions from people who think they know better.

"Wildly overpriced" is speculative on your part (at best). This isn't a publicly traded stock. It's preferred stock, and valuation is ~1 line item in a contract that probably spans dozens of pages. Those other T&C's matter a lot: liquidation preference, participating preferred, etc. Those newest investors are certainly getting superior liquidation preference, and likely getting guaranteed ROI.

Really? I don't.

Companies aren't blindly paying FB billions of dollars for ads without verifying they actually deliver a return... Clearly it's working, that's the reason so many companies pay for them.

Sure, they could probably get better at managing "click farming, bots, etc", but despite these things, advertising on FB has proven incredibly valuable and there's no clear indicator that'll change soon. If anything it'll just grow more valuable across a larger user base, hence their lofty P/E ratio (implying growth).

Google has weathered those same issues just fine.

1) People said the same about FB wrt Myspace.

2) Even if Uber's CAC doesn't decrease, it could have a vastly-higher CLV to justify the crazy spending to capture market share now. It's a calculated strategic decision -- and it's impossible to say if it's "wrong"; only time will tell.