Comment by chollida1 | Hacker News Reader

Comment by chollida1 | Hacker News Reader

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Note:

- Expected to be teh largest IPO this year in the US.

- 10th largest all time

- trying to raise around $10B

- 2018 Year Ended Revenue $11.27 billion

- 2018 Year Ended Net Income $997 million

- 2017 Year End lost $4.03 billion.

- 10 billion trips in September 2018, up from 5 billion in September 2017

- Gross Bookings From Ridesharing $41.5 billion in 2018

- Revenue From Ridesharing Products $9.2 Billion in 2018

- List under UBER, good ticker!!

- 29 banks listed as underwriting the IPO, for those of you wondering, yes that is alot. Like 20+ more than a typical IPO.

From Bloomberg:

- 2018, Uber's operating loss totaled $3.03 billion, however it technically turned a profit in 2018, generating $997 million in net income. That's thanks to a $5 billion "other income" benefit.

Other Income is defined as:

- Interest income, which consists primarily of interest earned on our cash and cash equivalents and restricted cash and cash equivalents.

- Gain on divestitures, which consists of gain on sale of divested operations.

- Unrealized gain on investments, which consists primarily of gains from fair value adjustments relating to our investments such as our investment in Didi.

- Foreign currency exchange gains (losses), net, which consist primarily of remeasurement of transactions and monetary assets and liabilities denominated in currencies other than the functional currency at the end of the period.

- Change in fair value of embedded derivatives, which consists primarily of gains and losses on embedded derivatives related to our Convertible Notes.

- Other, which consists primarily of changes in the fair value of warrants and income from forfeitures of warrants.

- Lyft now at $61/share, ouch, there just is no other way to put it. THey pulled a lot of financial engineering tricks to boost their IPO price and well the results speak for themselves:(

Biggest Surprise to me:

- Uber Eats comes in at $165 million for Q4, for comparison Ride sharing generated a total of $2.5B in net revenue, the rest being ride sharing.

- So Uber is not really all that diversified in terms of ride sharing vs other, they are essentially Lyft in more markets.

> Lyft now at $61/share, ouch, there just is no other way to put it. THey pulled a lot of financial engineering tricks to boost their IPO price and well the results speak for themselves:(

I don't understand why this is seen as a negative. An IPO is a share issuance — the higher the price per share, the more money they receive in exchange for the same percentage of the company. Post-IPO "pops" represent money left on the table, effectively a transfer to the high-dollar investors with connections to the underwriter who can buy at the issue price.

It's a good thing for Lyft-the-corporation but a bad thing for anyone who bought into the IPO.

Any sort of financial engineering tricks that goose the accounting numbers without affecting the long-term health of the business are basically a transfer payment from people who buy in at the inflated price to entities who sell at the inflated price. It's rational for the company to try to pull them; it's also rational for prospective shareholders to refuse to take the other side of the trade (at least until the price corrects to the point where the true fundamentals make it worth it). In today's markets, you can always find someone irrational.

Think about morale at Lyft. You have employees locked in who cant sell for first couple of months. They are seeing their networth plummet everyday.

Employees saw their share price go from $44 in June (private markets) to a range of $62-68 during the road show last month to an IPO at $72, to close today at $61.

Again, in less than a year, rose from $44 to $61 with a brief uptick to $72 in the middle.

How is that plummeting?

Loss aversion tells us that gains and losses have different emotional impact. In particular, perceived losses supposedly have a strong negative impact on people. [1] If Lyft employees value their shares at the IPO price, they might be feeling a loss all the way from 72 to 61.

[1] https://link.springer.com/chapter/10.1057/9781137544254_13

You’re just arguing for the sake of arguing. It’s a net positive. Positive is good.

He's got an extremely valid point, and morale at Lyft IS low, largely because of the reason above. Definitely not arguing for the sake of arguing.

But anchoring.... people anchor to the all time high.

They are going to get hammered on taxes, though. The IPO price sets the income they are taxed on while the price in 6 months determines what they actually take home. The result is that if you’re in California and the stock price falls to 30ish, you effectively take home nothing.

Not sure why people are downvoting you guys for telling the facts.

Why is stocked taxed at the IPO value rather than the current value? Relatedly, what happens if you simply sell the stock? Seems to me like that would just generate income you owe taxes on.

Aliston is referring to a specific circumstance that screwed many employees during the dot-com boom. If you exercise your options, that creates a taxable event for the difference between your option strike price and the fair market value of the stock on date of exercise. If the stock price subsequently goes down a lot, you can end up with a tax bill greater than the market value of the stocks when the lock-up period ends. It was generally advantageous for employees in the rising stock environment of the dot-com bubble to exercise their options before the IPO, or shortly after. For one, it starts the long-term capital gains timer going, so you can sell for LTCG rates 6 months after the lockup ends rather than a year. Two, the difference between your option strike price and exercise price is taxed as income (usually - for NQs and ISOs over the AMT, but not ISOs in low tax brackets), but the difference between exercise price and sale price is taxed as capital gains. That created a situation where many employees had tax bills on stock worth less than the tax bill.

This situation doesn't apply when you have straight RSUs that you sell when the lockup ends. These are withheld at income tax rates when vesting, and then taxed as capital gains rate when you sell. The IPO price doesn't matter in this case.

Pigs get slaughtered. Trying to time your options on a volatile stock to avoid short-term capital gains is gambling. Same-day exercise + sell is what any financial advisor will recommend.

RSU risk is worse because it is outside of your control, unless of course you don't have RSUs. You get taxed on the vest date. Withholding is often at the 25% minimum government rate. Assuming you're in a no-sell window, any downward movement before you can sell increases your effective tax rate, potentially to over 100% in the worst case. Consider the dot-com crash case where your RSUs were worth $1M on the vest date, withholding is $250K, taxes owed are ~$370K, and your regular salary is $100K. If the stock goes to $0 before you can sell... On April 15, the government will demand a check from you for something around $120K, but all you actually took home was around $70K. An effective tax rate of around 170%!

The real issue here might be that you can only deduct $3000 per year in losses. With $1M in losses, you'll be able to carry that over for centuries!

Carried over losses can be applied against future _earnings_ though so if you make $1M and not pay any taxes on it at that point because it's being offset by your past losses. I used it to offset my gains in taxes from selling my company stock (ISOs) when I sold a rental property at a substantial loss shortly after the Great Recession. Had my taxes double checked with an accountant to make sure I did the math right and I was right to the cent.

It's so fucked that the law is written this way.

I thought the saying was “pigs get fat, hogs get slaughtered”?

Also, with $1M in losses, one would not be limited to the $3k offset against ordinary income. Presumably one would have other gains along the way from other investments.

The quote I was paraphrasing was something like, "Bulls make money. Bears make money. Pigs (or maybe hogs?) get slaughtered."

And yes, you are correct on the other point. You would be able to avoid paying tax on your next $1M in lifetime capital gains. *disclaimer: This is not financial advice.

Employees get taxed on the value that they vest at IPO, but are locked up from selling for 6 months. The company withholds a percentage, effectively selling a portion at IPO, but it is less than the effective tax rate. I should clarify that this applies to RSUs, not options.

Edit: something similar can happen with options as mentioned, but the mechanics are slightly different.

For RSUs the withholding should be in shares - if your effective tax rate is 40% and you vest 5 shares a month, they grant you 3 shares and immediately sell 2 to cover the taxes. If your effective tax rate was 30%, they'd round up, still sell 2 of them, but remit the cash in excess of taxes to your paycheck. At least that was how my Google shares worked. A higher IPO price works to your advantage, because the refund you get for fractional shares is worth more. You're also never in the position where you have to cover the (income) taxes for RSUs with cash from the stock sale, because the taxes have already been withheld in stock. You only have to pay capital gains when you sell.

Except most companies (including Google) withhold supplementary income at 22% federal plus FICA, regardless of whether your marginal bracket is 22% or 35%+.

Usually this results in significant underwithholding on RSU for federal tax.

Yup, had this exact fear during my IPO. Fortunately, stock went up, so it was a win that I was underwithheld.

I was and continue to be surprised companies release RSUs at IPO and not lock up expiry, the later of which avoids the tax risk.

Can you ask your employer to increase their RSU withholdings?

I'd like to point out that FB went through something similar within the first few weeks. And, the current day price is $177.

Versus not being able to sell at all? Hard to complain if you work at a startup and actually have a massive liquidity event

Should've bought options to hedge.

It's against any competently worded lockup agreement.

"“Derivatives” is sort of a vague term, and there is a persistent folk belief that they have magic powers, that any legal or financial problem can somehow be solved by doing a derivative."

https://www.bloomberg.com/opinion/articles/2019-04-08/lyft-i...

Lyft's common stockholder market standoff agreement doesn't bar hedging. See the s1.

But employees are forbidden to hedge. Source: am one.

It's a tough call to make. By the time options came out, puts were extremely expensive relative to calls due to shorting pressure driving up hard to borrow fees. Aside from how bearish you had to be to justify buying them, you also need a lot of capital you might not have.

Besides, any current employee is barred from trading options by the insider trading policy.

Contractual limitations mentioned by a couple other people aside, options aren't even available until 5 days after IPO. http://www.theoptionsguide.com/criterias-to-list-stock-optio...

They are almost certainly not allowed by their employment contract.

You cannot trade options during your lockup.

It's also a bad thing for all the employees and investors as they have 180 day lock-in before they can cash out.

I don't think how one dresses up financials will have an impact on the stock price 6 months out; there will likely 2 quarters of earning reports (at least 1) which will dictate the price then, not what was released now.

> It's rational for the company to try to pull them

Aren't there issues with follow-on offerings? By taking the entire IPO pot for itself, the company will probably struggle to find investors if/when it needs to come back to the capital markets--which seems like an eventuality with Lyft.

Potentially, but for high-growth unprofitable companies management is usually betting that they can either use the extra money raised to fix the fundamentals of the business in time for the next capital raise, or else they need to dump their stocks on the public market and get out because there won't be a next capital raise. I'd bet that #1 is more common in the management team's head, but #2 is more common in reality.

> It's a good thing for Lyft-the-corporation but a bad thing for anyone who bought into the IPO.

Which in turn is and for the company since the new co-owners (shareholders) don't want to lose money but push the executives to "do something" (while in reality even combined most of the new shareholders don't have much voting power

While you're right in general about a pop, that doesn't really apply to Lyft. Their IPO price was $72 and they're now hovering around $60. They had an initial pop up to around $75 IIRC and then have been on a steady decline since.

Try hiring great talent with a tanking public stock.

Because this is a public market? One of things you expect companies to do, ethically speaking, is to provide honest information wherever possible. If Lyft used financial engineering to boost their IPO price, while they get money in loads while the average Joe loses.

If you miss too badly, you hurt your ability to go to the market in the future. In the extreme you open yourself to lawsuits and activist investors.

In general the big Pops only help the banks and their top investors.

Perhaps when large companies issue options at ipo they should expect this type of behavior.

Uber Eats revenue in 2018 is $1.46B which is pretty impressive

regarding other income: > Gain on divestitures increased by $3.2 billion from 2017 to 2018. This increase was due to gains on the divestitures of our Russia/CIS and Southeast Asia operations.

Covered on page 85, basically spinoffs with other regional leaders

Ive heard from reliable sources 10% of Uber Eats revenue goes to McDonald’s (not promotionally, in revenue)

Wow, that many people are ordering delivery McDonald's? Maybe McDonald's should start delivery services in some markets itself then?

the problem is that you have to have constant stream of orders to justify having people who deliver on payroll. Uber basically has people who deliver and then rent them to restaurants so they never have a problem of constant load.

+1 We recently ordered food from a Chinese restaurant that insisted on their own in house app and went as far as pulling themselves off Uber eats.

We gave them the benefit of the doubt and tried the in house delivery service - food took ~2 hours to arrive, presumably because their throughput to fulfil orders was capped by the number of drivers they could afford to hire full time - it was like going back to the days of every place having delivery men.

UberEats usually takes ~35 minutes for reference.

Why would McDonald's want to do the delivery if Uber volunteers to do it losing money?

Exploiting a business partner that is operating at a loss is a bad move when said partner is providing a significant part of your revenue. You are placing that revenue in jeopardy without good reason.

But in the McDonalds/Uber case I don't think that Uner is imortant enough to McDonalds.

How does the product/revenue work when McDonald's are all franchises - does McD corporate have a first-order incentive to worry about delivery revenue?

I think they probably know they can't do it anywhere near the "cost" that Uber eats charges. It's low value orders so not much comission (my guess) and the delivery fee doesn't cover what they pay the drivers. Plus all the bad PR of running a "gig economy" fleet.

They have 247 delivery in a lot of Asian markets - and I know first hand for at least more than 10 years in China so it's not like McD HQ don't have the business experience of launching the product...

Yeah I'm from Malaysia and we have McDelivery for as long as I can remember.

Imagine my surprise when I first went to Europe and found out that McDonald's is not 24/7 and doesn't do delivery.

They do. Google "mcdelivery" - it's all through south east asia.

McDelivery is the name of the global initiative and it is implemented differently in different countries. In the US, McDelivery is fulfilled by Uber Eats.

Many fast food restaurant chains deliver in South East Asia. It's a bit different because fast food is not the cheapest option there, but it's a step up from street food.

Bad idea. Overhead from running your own delivery service is high, and the profit wouldn't be more than using the existing network of delivery services. It would probably be negative.

It does in parts of the world where costs are low. Over here it makes sense for them to let Uber/VCs subsidize the operation.

I'm noticing more chains offering delivery, I wouldn't be surprised if McDonald's is next.

I'm surprised that Eats is doing more revenue than GrubHub and much more revenue than Caviar.

can you share the two numbers you are using for comparison?

The Q4 numbers I see:

Uber Eats: $165 million Grub Hub: $205 million*

* https://investors.grubhub.com/investors/press-releases/press...

From Page F-31 / 114 of the S1, Uber Eats 2018 revenue is 1.460B.

GrubHub's 2018 Revenue was 1.0B (https://investors.grubhub.com/investors/press-releases/press...)

your Grubhub number is referring to Q4'17...

well, uber eats is in a lot of countries that grubhub is

One thought about your ticker comment - I actually prefer it when the ticker is NOT exact same as the company like UBER or LYFT. This is because I know when I google AMZN, AAPL, TSLA etc. the search engine knows I want the stock price and am specifically asking about stock. For UBER and LYFT I have to type something like ‘LYFT stock’ if I want the price, trends and news around that.

Try adding a $ in front of the ticker and Google will take care of it for you.

Hmm I just tried on an iPhone 8+ googling $lyft on safari and nothing I got back in the top results are stock related. Then I tried on my home desktop with DDG with FireFox and had similar results. Perhaps the behavior is tied to the “google bubble”?

FWIW, it didn't work for me either.

Couple of things which I find interesting are:

- The whole calculation around "Other Income" are nothing short of financial engineering to show bottom line profitability.

- 24% of Uber's gross bookings come from 5 cities - Los Angeles, New York City, and the San Francisco Bay Area in the United States; London in the United Kingdom; and São Paulo in Brazil

- 15% rides started or were completed at an airport.

This $3.2 billion other income in 2018 was from divestitures of Russia/CIS and Southeast Asia operations.

"- Lyft now at $61/share, ouch, there just is no other way to put it. THey pulled a lot of financial engineering tricks to boost their IPO price and well the results speak for themselves:("

Seems they priced it perfectly, extracted maximum value for their investors and left nothing to gain for the public.

Uber is Lyft in more markets? More like UberEats is almost Lyft.

>- 10 billion trips in September 2018, up from 5 billion in September 2017

You make it sound like they had 10 billion trips in that month alone. It is 10 billion by September 2018

When considering 2018 you really need to ignore the 4.9B in other income. The vast majority of that was a one time event, and then the next largest line item is unrealized gains. Not sure what the gains were on but likely something not very liquid and volatile, e.g. a start up.

It's basically a 4B loss for 2018. The numbers all around are just unreal.

Lack of dual class stock is also interesting.

That's not really surprising, is it? Dual class stock is usually issued for tech companies where the founders were able to hold onto a lot of shares until the IPO, which I think isn't the case for Uber.

>THey pulled a lot of financial engineering tricks to boost their IPO price

Could you elaborate? Interested in knowing more

I’m curious about their Treasury department. How do they manage the float bet. when users pay and when drivers are paid? How do they manage FX? A sharp treasury team is quite an asset.

got me curious, 10 largest IPO so far:

https://webcache.googleusercontent.com/search?q=cache:https:... [gcache]

> Adjusted EBITDA was $(1.8) billion in 2018 and $(2.6) billion in 2017

from what? investing unused VC money they expect to burn in the near future?

So... Step one, raise funding to run a revolutionary company. Step two, ditch original idea for being revolutionary once funding is obtained. Use interest bearing bonds and other investments. Step three, profit.

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