SoftBank Succeeds in Tender Offer for Large Stake in Uber
wsj.com
wsj.com
I'm under the impression this is a totally different class of stock than the $70B valuation round?
Common stock at a $49B valuation is entirely different from preferred stock at a $70B valuation with what I'll assume includes a lot of "fine print" around pro-rata and/or liquidation preferences.
Feels a little clickbait-y to say the valuation took a haircut when we're talking about different classes of stock.
Given that the latter shares are being sold by existing stockholders, it doesn't seem fair to call this a down round.
I'd expect their valuation to remain the same.
It's expected that common shares are worth less than preferred shares. After all, the preferred shares could be paid out at value in, e.g. in the event that the company is sold for far less than the current valuation, and the common shares would be worthless.
Probably not. The strike is likely at a much larger discount.
There is a thriving, if shallow, secondary market for the private stock, common or preferred, of companies like Uber.
[1] http://kara.allthingsd.com/20090713/facebookers-start-cashin...
This tender was not restricted to common stockholders. Some preferred stockholders, who bought in recent rounds, sold down or flat. Practically nobody, if not absolutely nobody, who tendered common stock to DST in 2009 lost money on their original investment. The same isn’t true with Uber.
An investor from March 2016 Series G would have sold, to SoftBank, at a lower price per share than that at which they invested. That’s a haircut.
Pricing for preferred versus common, or even different classes of preferred, does diverge. The degree to which it does reflects proximity to liquidation, amongst other factors. A 30% discount for a late stage company between any two stages of preferred is not healthy nor common (no pun intended).
Not sure why every time a story about people selling Uber stock for less than they bought it this naïve financial interpretation comes out in droves.
Softbank has stakes in Didi, Didi has stakes in Uber, Uber has stakes in Didi, with this Softbank got stakes in Uber.
Uber is mostly successful in North America and Southern Americas. Didi is obviously successful in China and will expand to Southern Americas soon.
Europe is not an important market for these companies. Too much regulations and good public transportation won't allow them to thrive.
Softbank probably wants Uber to be limited to North America and have its companies like 99 and Ola compete with Uber in their markets.
If Uber is limited to US and Canada and a few small markets here and there, then it makes sense to see its valuation go down like this.
Softbank is competing with Uber in a global scale using a network of companies it invested in, including Uber!
https://www.uber.com/country-list/
https://en.m.wikipedia.org/wiki/Uber_(company)#Legal_status_...
India is ripe for Ride sharing cabs. In major metros, OLA (specifically OLA Select) is the ride of choice for middle class youth. With free wifi and one hour work commutes common, the ola ride becomes time to get emails and secretarial work taken care of.
As a more interesting question, is there any difference between saying SoftBank is competing with Uber and that SoftBank has hedged against an Uber investment? I feel like the latter may be more the framing of these investments.
One of the next steps for those companies is probably to get roaming agreements with each other: When I'm in a country where, e.g., Uber doesn't operate I'd still like to be able to use the Uber app to order cars from whatever local companies Uber has an agreement with.
The further complication is that Didi only accepts patent through a China bank account. As a result, you usually need a local friend to book your ride, even if you pay cash.
Uber "seems" everywhere, but is largely North American.
This was because Uber did not provide adequate insurance for rides and did not comply with German transportation law.
I fervently hope it's the US only. I will talk to my MLA and show him a nice collection of news about Uber in hope they will not allow them to operate their scam in Vancouver.
Ride share is a great servicce for people and increases safety in many areas.
'Ride sharing' does not even begin to describe Uber. There is no sharing going on whatsoever. It's a taxi company that just ignores the law on principle to gain an advantage, while also spending VC money like crazy in a very illegally anticompetitive manner.
If Uber and Lyft are "just taxi companies" then why don't all the other taxi companies just make a similar app and then promote the idea their upstart competitors are regulation-avoiding scum? It ought to be more effective than ignoring why people use them.
Uber’s play is to wait out taxis going out of business and then charge you $50.
And also, Uber loses money on every ride. That $26 ride to the airport cost Uber $30. :)
Uber is no ride share service, it is a test project to figure out if modern society will accept a larger lower income working class without any social security, and that is what all investment firms bet on.
In an Uber/Lyft ride hailing system cabs can only be hailed via an app, and will only accept the most profitable rides. Surge pricing may also make the ride only affordable to the relatively wealthy. In such a system, low income persons in relatively remote areas lose transportation options.
Part of the extra price of cabs is the price of creating a transportation system that is accessible to everyone, not just the most wealthy.
App based ride hailing dominance reduces accessibility.
(You can already get a voice assistant to book a ride for you too.)
I seriously doubt people will be comfortable with this stuff unless they have a history with engineering/IT.
See we can both play the no proof game.
As Uber gains dominance over regulated taxis (which are obligated to serve everyone), the level of accessibility to transportation in certain generally unprofitable areas may decrease.
LOL you must never have taken a cab ride pre-Uber. Your two assertions are the two main reasons why Uber and Lyft exist.
> In an Uber/Lyft ride hailing system cabs can only be hailed via an app, and will only accept the most profitable rides.
You don't know how the Uber app works.
So Uber drivers are not able to decline a ride request?
The fear that I've heard described by politicians in my city is that uber drivers could position themselves in areas where they know from experience they will be most profitable (eg. dense downtown core) while avoiding areas that over time are not as profitable (eg. sparse outer areas). This fact, coupled with the fact that they are not obligated to travel to a certain area to receive a fare, means that certain areas could receive less reliable service as drivers chase high profit areas and are able to ignore others.
Before you follow blindly what your politicians are telling you, do some research and educate yourself first. Don’t rely on headlines and word of mouth.
And that point is exactly what makes up Ubers' valuation. Ignoring the questionable ethics of that this should be reconsidered though because comparing to the technical value of their service they are requiring way too many engineers to deliver their services, which is a considerable risk if they grow any further.
Car insurance, maybe; car companies don't pay health insurance or pensions either for their drivers, who are also characterized as contractors rather than employees.
Meaning Uber eliminates basically the most prominent achievement of the working class with its service. Turning everyone into an independent contractor eliminates social security. Swiftly.
http://www.bbc.co.uk/news/business-37802386
Still waiting on the Inland Revenue to collect all that back NI tho’...
If that holds true, Softbank has managed to have a stake in every major app-based-taxi company of the future.
Although locals tell me it is illegal you can wait over an hour and a hundred green-lit taxis before one will stop to pick-up someone without an app that is willing to bid a few yuan. Train stations and airports have cues where you can still get a ride, but don't count on hailing a car in the evening even in a busy downtown district.
As a result they control all of the taxi business and all of the ride-shares. I must say not having to transact in cash is nice.
As riding hailing becomes dominant (with their rise only being enabled by being able to skirt regulations) it creates a transportation system where one needs a mobile phone to participate. This excludes low income persons and persons with low technical literacy.
The way that ride hailing slices away only part of the population and ignores the rest is highly undesirable for governments which are required to provide transportation solutions for all persons.
Over-here in Romania Uber is also scoring it big in cities like Bucharest or Cluj, almost all of the middle-class people between 20 and 40 years of age now use it, they've almost all stopped taking taxis (seen as too dirty). I'm one of the few exceptions in my circle of friends (I'm in my late 30s) who still uses taxis taken directly off the street or by actually calling a phone number, because I don't want another company tracking my every move (it's enough that Apple and most probably Google are doing it).
- undefensible core business model
- overvalued market cap
- assumes capital markets will hold
https://www.forbes.com/sites/abrambrown/2013/07/30/sprints-p...
To me, he's a risk-taker for the sake of taking risks. He has to be perceived to be taking risks in the Japanese circles for some reason, but might be a billionaire ego. While there were good picks like Alibaba, these capital intensive acquisitions seems counter productive and during completely different environments (early 2000s).
I don't mean to criticize Son Masayoshi for all he is, after all, he did overcome poverty and a systematically racist Japanese society that severely limited the economic activities of non-Japanese, purely based on blood. I just feel like most of his North American acquisitions haven't turned out great.
> Seed investors in Uber who sell to SoftBank will make a ~3600x return. $1.6 million round in 2010 would now be worth $5.7 billion at offer price.
This also appear to apply to subsidiaries in other countries. Given the way Uber has been going, next year is going to get interesting. Given Uber’s struggles, if SoftBank follows the playbook, they won’t touch anything for a full fiscal year. If things don’t improve, expect to see multiple executive heads roll in the second fiscal year, all on the same day. In the third if profits haven’t improved, expect a layoff of regular employees to make the numbers work.
After that, depending on how aggressive they have to get, there could be a whole other set of reasons not to want to work at Uber...
However as someone else pointed out SoftBank has ties to some of the other investors, so who knows what the board room will look like.
Any ideas on who are these other members?
As for the question on whether this is a haircut on valuation is an interesting one.
This is not exactly raising money from a VC rather through a secondary offering, so Uber can still claim there is no down round. It's just that people in public bidding sold on a discount. But, that is fine too as common stock from early rounds are actually worth less than common stock from later rounds.
https://www.bloomberg.com/view/articles/2017-11-16/softbank-...
> Since Uber's stock doesn't trade on an exchange, there is no public record of its value changing from day to day, and it can point to its last fundraising round as its still-current "official" valuation, whatever has happened since. But if it does a new round at a lower price, it won't be able to play that game any more. And as Uber gets closer to an initial public offering, that game becomes more important: It's harder to argue for an $80 billion IPO after a $50 billion private down-round.
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Net neutrality.
It's the exact nightmare scenario Net Neutrality supporters warned us about. Packaged internet. No more free access.
It seems like any company willing to take a down round is also fine with taking a publicity hit and a hit to morale, which suggests it's in an even worse spot compared to what the devaluation would suggest.
Is there precedent that suggests even that SoftBank will come out on top from this?
If that's what Uber is doing internally, then in practice I imagine they're going to have to give out a lot more options to keep everybody happy.
For the people who have options, some could still be entirely wiped out by this, but it's not as big a problem for new hires.
It's still a problem, though. As the Reddit discussion makes clear, people are benchmarking against things like Google. The equivalent equity package from Google 2 years ago would have gained 30% in value, while the Uber one has lost 30%. Assuming $200k in equity from each place, that's $260k for Google and $140k for Uber, or nearly a 2x difference.
That would sure make me think about jumping ship.
It's not. Public numbers are based on preferred shares. Options are common.
It makes sense that each major region will have 2 or 3 dominant operators including local taxis. In the long term, a local operator will have advantages due to better local knowledge, government relations, etc.
Roaming agreements will take the equivalent of Star Alliance, and primarily of value for international travelers. Most users will interact with their preferred local operator. Note this has been tried already, but failed due to parties not trusting each other, but will probably be tried again once territories are more nailed down.
I think Uber/Lyft can take over the whole US since they don't need to maintain much supporting infrastructure. Plus they can get economy of scale in marketing.
I'm with discordianfish in saying only 30% down sounds better than it could have been for Uber.
If someone does have a vision for a successful Uber, I’d love to hear it, not to try and pick it apart, just to understand what’s happening.
I'd say it's way too early to speculate yet...but somewhere within softbank, a risk manager is already planning on the whole deal to fail(that's his/her job), and how to keep the effects of that failure from being catastrophic.
”Uber has found a buyer, and a partner, for its auto-leasing business that was losing more money than expected”.
The naked capitalism analysis was childishly biased, completely done without access to the necessary detail of their financials. Uber under Kalanick poured massive amounts of money into accelerating international market expansion as well as a huge number of side projects of questionable value.
Uber just exited the car leasing business. Yes, Kalanick had Uber leasing cars to drivers, and losing big money doing it. How much has it poured into Uber Eats? How much did it pour into driverless car tech when it will be easily available whenever it becomes good enough for regulators to allow it? Besides the cost, how big a distraction to running the actual business of offering car sharing services were these hundred other endeavors?
The new CEO just has to trim out almost all of the side businesses, and put the focus on finding more cost effective ways to grow Uber's car sharing services world wide. Part of that is not pissing on your own brand by doing sleazy things. In the end, if they remain the world wide leader in car sharing service, installed on the most mobile devices, with the biggest pool of drivers and customers, they'll be very profitable. and making the transition to driverless cars will be easier for them than anyone else because they'll have the biggest brand and customer base.
There is clearly some profitable ride-sharing business in the general Uber model, but it remains unclear that there is a profitable ride-sharing business with enough gross revenue to justify a 10x unicorn business. Uber's main problems with profit margins aren't Uber Eats or even driverless cars, it's in getting their ride volumes up.
The only way it made sense to me is if Uber achieved the same sort of dominance that Google has in search or Facebook in social networking. But Uber's market share is declining [1], and I just don't see a moat that allows them to be able to extract monopoly/monopsony rents.
Just the other day a friend caught an Uber in a strange city. The driver, who drove for multiple providers, encouraged her to use Lyft instead. And Lyft is hardly the only competitor; starting a pseudo-taxi provider is just not hard. So I think Uber won't be profitable for long even in the driverful car market. And when driverless cars come along, the amount of possible well-funded competitors (BMW, GM, Ford, Virgin, Enterprise, Google, etc, etc) means it's unlikely to get better.
[1] https://www.recode.net/2017/8/31/16227670/uber-lyft-market-s...
I see some upside, although probably less than you. Even if the market ends up being large, though, that only matters if a) they have a large share of it, and b) competition doesn't drive margins to approximately zero.
Facebook and Google are worth a zillion dollars because there is little competitive pressure. GM's market cap is less than 1/10th of Google's because they face stiff competition. Or compare with airlines. The top 3 airlines by revenue bring in circa $120bn per year versus Google's $90bn. But the market cap of those airlines is only $70bn combined versus $729bn for Google.
I think airlines are good comparison for the pseudo-taxi market. Barrier to entry isn't huge, and lots of well funded people like to play in the space. That means that consumer price competition is cutthroat; profit margins and market caps thus stay low.
But Uber's in a worse position than an airline. A 777 or an A380 costs upwards of $300 million, and you need more than one of them to be a plausible airline. For pseudo-taxis, though, you just need some software (likely available via white label), a few drivers in one city, and a bit of local marketing muscle. It costs 3-4 orders of magnitude less to start a 1-city Uber competitor than a regional airline.
And there are an awful lot of people who want a slice of the future transportation pie, including every single car manufacturer (who can have custom cars at cost), every car rental company (which combined have 2m cars and 20k locations, a number of major tech companies (certainly Google, possibly Apple and Amazon, surely others), and possibly anybody with a strong brand (e.g., perhaps Virgin, GE, Ikea, LVMH).
So no, I don't think Uber's valuation was justified. Neither does Softbank, obviously, or anybody else with the money to buy in. But I think it will go lower still.
The bet is on providing sophisticated transportation logistics in fast growing developing world cities that are currently served by a hodge podge of unaccountable, poorly coordinated small time private transportation companies, and where overwhelmed regional governments are unable to provide sufficient public transportation services.
It's an addressable market of potentially billions of people who will never own cars, and and currently have limited options.