Uber prices blockbuster IPO conservatively to raise $8.1B | Hacker News Reader

Uber prices blockbuster IPO conservatively to raise $8.1B

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44 pointssamsonradu85 comments

If you're planning on buying Uber stock can you walk me through your reasoning?

How big is the worldwide market for 1) personal transportation, 2) package and parcel delivery, and 3) 30-minute delivery of prepared foods, groceries, pharmaceuticals, auto parts, etc.?

Can Uber capture 10% of that combined market opportunity with the efficiencies that come from globally optimized routing of all those trips?

Can Uber inside-out the company so others can execute on its platform, with Uber taking a cut?

If so, then an $80 billion present value seems low.

They have been going a decade, they havent turned a profit yet, in fact they have been burning through capital. What is going to change in the next decade that means they will return a profit consistently enough that either dividend payout will occur or a higher share price will be achieved?

Seems to me that as soon as Uber find out how to turn a profit thats when copycats can jump on board with their app and start taking a slice of ubers cake. Afterall they wont have long term investors to repay so their prices could be lower than Ubers, making the value proposition of uber even worse.

To be fair it's the unit economics that you'd want to look at, not the timeframe.

If their goal is to go very global, very quickly, it'll take more than a decade of burn.

If the unit numbers work in established cities, and they are spending on direct expansion, then it's good.

That said, much of their 'expansion' has been into other things, and their unit economics are questionable, though on the later ... when Lyft and Uber settle down into a nice duopoly in most cities prices will inch up a little bit if need be.

A big question is whether the unit economics of ride hailing in their currently profitable cities are a best case scenario, which seems plausible (US taxis are by most accounts unusually restricted, expensive and lacking in alternatives compared with transport in most of the rest of the world and US consumers much richer than average, and the Uber brand isn't necessarily the same asset in other markets either). Which raises the question of whether they'll ever get a return on more difficult to penetrate and competitive markets.

Yes, that's the big question.

I believe that they do provide value, and have kind of a network and brand effect.

I believe there's some margin for Lyft/Uber to exist.

How big it will be? Who knows. Maybe not enough to support their gigantic valuation, but probably some valuation.

I think many of these IPO's are simply way overvalued and are going to have trouble maintaining value.

They might crash if there is a stock market tumble as the wind comes out their sales.

The difference between now and 2000 however is that these are actually viable business at least on some level.

What makes you think they are even trying to make a profit? Uber has investors willing to throw billions at them to spend on growth, why wouldn’t they take it?

Going public means a different strategy for the board.

Up until this point Uber has been a hot investment ticket for VCs, and the existing investors have been incentivized to pump up the valuation to improve their position. This strategy involves self-driving cars and helicopters and edgy vaporware - basically creating these tactical hype moments for the Uber brand.

Now with public investors, the hype strategy isn't sustainable and the board will need to turn a profit (eventually) or be ousted by public owners who don't want to see their shares in a company be destroyed.

Going public brings a different set wof eyes to the table and more scrutiny and lesser patience from the public. That’s why. The story of being a loss leader is not taken kindly

Where I live, in Europe, we have now Uber, Mytaxi, Bolt (prev Taxify) and Cabify. Not sure if there are even more. I regularly switch between them (to make sure their algoritmes think I am a critical user = lower pricing).

Then there are also electric bikes and electric scooters (4 or 5 platforms).

And there is DriveNow, a on demand rental offering of BMW.

Just saying: local competition seems 'too easy' (as platform one could even use libretaxi.org or tagmytaxi.com)

The question is not how much market share, but how much sustainable profit they can make. In the mobile phone market there are several bigger suppliers that are making no profit.

Another thing to keep in mind: VC's and other investors are in it for the money. If there was more money to be made by keeping the company private, they certainly would do that. They decided to do a IPO because it will make them more money then not doing an IPO.

This has to do with Uber's viability as an app/tech platform, which is very different than share appreciation of a public company. Uber is a smart(er) taxi service that doesn't own any fleets of vehicles, or anything else really, and operates at a loss.

Uber may not faceplant quite as badly, but look to Lyft's IPO to see what's likely in store for them. This IPO screams "cash out and give the bags to retail investors"

Congratulations you have just committed the elementary Chinese Soda fallacy.

While I knew what you were implying, I wanted to see if this was actually a common term. It isn't but it did lead me to another HN comment [1] and this Fast Company article referring to is as "Chinese Math" [2]. Just an FYI for anyone else because this sort of "1% of x market" thing comes a lot and a term is helpful to speed up the convos.

[1] https://news.ycombinator.com/item?id=10735610

[2] https://www.fastcompany.com/1710460/chinese-math-or-1-mistak...

I didn't know the term for it [1], but yes, I had long since started checking out whenever someone starts to appeal to "if we can just get n% of <huge market>".

[1] Even "Chinese Soda" has not entered common usage enough to justify calling it "the" or "a standard" term for it.

The "Chinese math" fallacy is only fallacious when it hides how difficult it is to steal a small percentage of a giant established market.

How exactly does the "fallacy" apply to Uber, a company that thoroughly understands how difficult it is to carve a big chunk out of entrenched competitors?

Since they've already demonstrated the ability to steal a sizable percentage of the taxi and car rental markets, it's good for Uber that they didn't listen to all the smart guys on HN.

>The "Chinese math" fallacy is only fallacious when it hides how difficult it is to steal a small percentage of a giant established market.

Which is what I was using it for.

>How exactly does the "fallacy" apply to Uber, a company that thoroughly understands how difficult it is to carve a big chunk out of entrenched competitors?

To clarify, that part is not the problem with the comment. That is a legit argument for why Uber can justify its valuation.

The problem is trying to amplify the persuasiveness of the argument by appealing to "small percent of huge = big". That deceptively makes the argument more appealing than it deserves to be, and is a lazy form of justifying a valuation. It plays tricks with human intuition on big numbers to (as you note) underplay the difficulty of getting a small number.

Hence why it's a "reach for my revolver" type situation.

Be careful not to equate "they have, independently of this argument, a good case here" with "therefore it's not the Chinese Soda fallacy to mention the percentages."

I consulted for someone once to do some market sizing among other things. They were determined to make a case around winning 10% or whatever for the worldwide market for X.

It would be helpful to others if you explained what exactly your purported fallacy entails.

I can find only one other reference to it and it's on HN.

The way it was taught to me, decades ago because I’m old and people used to say “Chinaman” out loud, was the fallacious line of thinking begins “if I can just sell every Chinaman one Coke...”. The Fast Company article is right on.

So the 1% fallacy - i.e. "if we could just get 1% of this huge market we will be billionaires!" (ignoring the costs involved).

Basically every other episode of Shark Tank.

Thank you, I appreciate the added historical context. Will give the Fast Company article linked above a read.

It’s not that uncommon. I’ve certainly heard of it. But basically winning 1% of sizable markets is neither easy or cheap in most cases.

What's the future? There's no guarantee autonomous vehicles will work at scale well in the next 10 years. Even if they do, ATG is behind its competitors and losing talent. The rest of their business except uber eats is bleeding money... and Uber eats is only sustainable if they keep human drivers that can actually pick up/hand off orders.

I am not buying stock, but a business model that could work is renting out a percentage of their capacity to companies/startups that need to deliver goods or services to customers' homes.

I also don't believe self-driving will be anything more than tech stuck in R&D for the next 10 years. If I were an investor have preferred Uber sell ATG before this IPO.

On the flipside: if you're a person that's convinced Uber should be valued at a fraction of what it is and you're not shorting it, why aren't you?

You might argue the market will remain irrational, but this is unlikely to be the case for 25+ years. This should mean that most people set against the Uber IPO should hold a short position with at least a small portion of their net worth. Doesn't seem like this is the case.

You can't easily short Uber yet, it is not traded yet. You'd need to find a) a current stockholder that will borrow you shares, and b) a new potential stockholder to buy it from you. And even after it starts trading it'll take a few days for options and shorts to become available.

Tip: if you want to short via options (when options trading becomes available) wait a few hours to let the market makers settle their positions. Source: I've shorted BYND and paid a higher than necessary options premium because I was impatient.

Bearish because an upcoming recession seems likely to have three effects

1) make money more expensive and harder to justify subsidizing rides

2) increase the supply of drivers.

3) decrease the demand

Less demand, more supply, but possibly higher overall prices due to subsidy withdrawal feels like a dangerous thing

On top of that regulatory pressure to treat drivers as employees could decimate Uber at any moment.

Not shorting because gambling on the stock market is not worth the effort. God could declare the true present value of a company’s future cash flows to be $10/share and I still wouldn’t count on the market to get it right- among other bothers.

I own broad index funds. I expect that at some point, Uber will be added to the index that the funds track, so the funds will buy Uber.

The basic reasoning here just boils down to market consensus that Uber is worth $x billion, and I don't really have any reason to think that I can outguess the market consensus.

I'm only starting to hear that Uber intends to replace public transportation:

> Our Personal Mobility TAM consists of 11.9 trillion miles per year, representing an estimated $5.7 trillion market opportunity in 175 countries. We include all passenger vehicle miles and all public transportation miles in all countries globally in our TAM, including those we have yet to enter, except for the 20 countries that we address through our ownership positions in our minority-owned affiliates, over which we have no operational control other than approval rights with respect to certain material corporate actions. We estimate that these 20 countries represent an additional estimated market opportunity of approximately $0.5 trillion.

See "Our Market Opportunity" section in the S1 (https://www.sec.gov/Archives/edgar/data/1543151/000119312519...)

This seems quite ... optimistic to me. I'm not sure how many public transportation companies actually operate at a significant profit, such that they can undercut. It also seems risky, in that they might generate a huge backlash if they try to do the whole "we're just gonna loss lead until we're dominant, then jack up the price" strategy.

I'm guessing there is section of the population that says "screw it, I'll rent a car" where public transportation is quite slow, but replacing public transportation for poorer people is just going to be losing money. Given that Uber is already losing money, I'm just wondering how you'd develop a model where this TAM makes sense.

There are many profitable subsections of public transit. The issue is the it’s a PUBLIC resource. They’re not run to maximize profit. They also run many lines which are not profitable. If a private company tried to steal the business of the profitable subsections it would put the non profitable ones at risk. Smart governments would outlaw such competition.

They wouldn't even need to outlaw competition in most cases of profitable subsections of public transport, because a profitable commuter train into $busycity /= a potentially profitable service driving commuters in large numbers of small vehicles through heavy traffic to the same destination...

Right, this feels like they inflated their TAM a whole lot.

They are a "luxury option" already today, so ... I'm not sure what they're replacing. If they truly are gonna take on public transportation, I'm not sure how they could stop governments from shutting them out.

Right, but is Uber going to offer light-rail ridesharing now? Many of these profitable systems have fixed public infrastructure in place that contributes to that variable profitability.

I'd curious to see an explanation of just how the ride-sharing business might be profitable.

I assume this:

"Uber’s chief executive, Dara Khosrowshahi, argued that Uber’s future was not as a ride-hailing company, but as a wide technology platform shaping logistics and transportation."

implies that Uber hasn't figured it out.

Not clear to me it’s more complicated than raising prices. But that probably implies operating in fewer markets and lower volume. You’re a taxi with better dispatching at that point.

"Can you give us $8 billion for 10% of this venture so we can, you know, figure out a way to make money?"

This is was done for quite awhile for Amazon.

Part of the way I remember the early Amazon is they were bootstrapped by the fact that web purchases were, for a time, exempted from state sales taxes.

Some of that history here it would seem:

https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_Stat...

I'm tired of this fallacy. Amazon was losing money only because it was expanding. They could have stopped expanding and they would have made money instantly.

Uber on the other hand is losing money because they are actively competing. They cannot be in business without losing that money, that's where it's scary

I am not planning to buy, but if I would consider, my reasons would be specifically to not bet on self driving cars. I don't foresee self-driving cars to be ubiquitous in the very near future (5 years). Until then, Uber's presence and driver network can ensure that they are profitable in current markets. They already are in major cities.

I'm not planning to buy because Uber's "driver network" is a pool of independent contractors they are rapidly burning through with unsustainable wages.

Uber depends on those suckers - they inflate Uber's coverage and perceived value. If Uber can't deliver self-driving cars before they run out of suckers, they will become one-of-N commoditized "rideshare" apps.

Don’t they spend a lot more on self driving than say lyft? I think a bet on Uber is a bet they win self driving. A bet on taxi apps is a bet on lyft.

But hasn't Google invested a couple billion on Lyft? And since Google is the leader in self-driving, might not Google help Lyft in its self-driving endeavors -- therefore making Lyft more able to pull-off a fleet of self-driving taxis?

Self-driving cars are more expensive than a human-driven fleet. Lyft would need to own (or lease) the vehicles themselves, and pay all the associated maintenance costs. Their current business model is entirely predicated on not paying those costs, and nothing about self-driving will provide the necessary margins for the economics of a self-driving fleet to pan out.

> Self-driving cars are more expensive than a human-driven fleet.

Only in the very short term. Over 10 years the cost of self driving is much much less than the cost of paying a worker to drive a car for 10 years, once the tech is developed and good enough. Just a matter of who wins that race - and how long they win that race for. If you beat the rest of the market by 10 years, there is some serious profit to take. If your competitor finishes 10 years of research 3 months after you, you are in trouble.

Owning a fleet is mostly a problem when they are laying around depreciating without being used. Higher capacity factor of self-driving cars will make the economics a lot better. The main issue would be if one player owns the self-driving IP they can capture that surplus. So investing to develop that IP is an good opportunity.

Wall street is crazy to me. They're losing out on a ton of money to avoid articles about "OMG the price isn't higher than last quarter!"

I recommend you read https://www.bloomberg.com/opinion/articles/2019-05-09/the-ub... to get a better idea what is actually going on. Nothing crazy.

The fact that this is the most money losing company ever to IPO should raise some eyebrows.

Early investors need to recoup something, so thats going to come from retail investors and pension schemes. When the share price halves in 12-24 months time the early investors and founders will be so rich they wont care.

I still think it’s pretty crazy to price an IPO below the highest price that you can get for the full allotment. Facebook’s stock plunged in the months following its IPO, but it can raise capital at a much higher price now. The stock price shouldn’t matter in the short run.

This whole thing is a load of spin.

If they could have gotten a higher price, they would. Uber stock is going to be lower than this valuation in a month's time, mark my words.

"If they could have gotten a higher price, they would" - this is very true.

But consider with every price is risk.

It may very well be that Uber wants to limit risk of some debacle and is taking a conservative approach, which is reasonable.

I will be shorting this stock. It's obvious to me that Tesla will be eating Uber's lunch when it comes to Autonomous driving. In fact, I believe this entire IPO is just a way for investors to try to minimize and spread out the losses they know they will incur from Uber going under.

Nothing is obvious when it comes to how autonomous vehicles will shake out.

That autonomous driving is coming is inevitable. The scale and timing I can debate though.

Chris Urmson, co-founder of Aurora and former cto if the Google self driving car project doesn't expect to see autonomous vehicles such as robotaxis scale broadly for 30-50 years. His time frames were a fair but more aggressive a few years ago before he had hit self-driving car puberty.

Autopilot's true believers have yet to recognize the full scope of the problem.

> Autopilot's true believers have yet to recognize the full scope of the problem.

Those guys have their head in the sand about autonomous cars effects on congestion.

Well that’s another issue. I don’t drive into my relatively nearby major city much these days because of traffic (and because it’s nearly an hour in any case).

If I could be driven at minimal incremental cost? A whole lot more.

And I doubt I’m atypical.

A moon base must have seemed inevitable to those in the 1960s too.

1960s is a bit too optimistic. I personally think it'll happen in the 1970s.

If building a base on the moon created wealth and would have rewarded the builders with billions of dollars, then yes, we'd probably have a base on the moon by now.

Not much money in moon bases. Transportation industry is over half a trillion $ though.

If I want to invest in autonomous vehicles why am I buying stock in a money losing taxi company instead of a company that makes money and is doing self driving car research.

Are you referring to buying Alphabet stock (Waymo) or GM stock (Cruze)?

Uber and Tesla are both highly unprofitable companies, so you couldn't be referring to either of those.

Exactly.

First I thought your predictions were my favorite part of your comment, but your confidence won out.

Thanks, I enjoy it. Gives me something to link back to once I'm correct.

I mean, Uber's financials are a total mess, and their valuation is 100% predicated on "winning" at autonomous driving, and Elon just said that everyone using LIDAR platforms are fighting a losing battle, and I personally believe him.

Plus he owns the lion's share of the electric car supply chain, so...

Tesla's balance sheet is not in great shape either, and lately Musk seems to be heavily leaning on the autonomous driving network idea as a justification for raising additional capital (largely through dilutive equity offerings of course, since the corporate bond market has had enough of Tesla's shenanigans and they want over 8% interest on unsecured debt).

Also, Tesla is heavily all-in on computer vision - I would be hard pressed to name a single person alive who has a bigger conflict of interest than Elon Musk when it comes to giving advice on the feasibility of vision-based AD. Consider your sources...

Tesla is also just a battery company. They're not specialized in A.I. or even scalable car manufacturing, as they've struggled to hit quotas.

The final computer vision product they're trying to build isn't something you can just bootstrap your way into. Or even will, because building fleets of self driving cars means less car owners and customers for your main business.

If you believe in Tesla autonomous driving you should just buy Tesla stock.

I would, but them being successful at autonomous driving is already priced in, at least to some extent.

Do you think Tesla stock is currently undervalued, assuming they will become a leader in autonomous driving within the next five years?

Waymo valuation is estimated at somewhere between $80 to $175 billion (https://www.pymnts.com/news/investment-tracker/2019/funding-...).

Tesla is currently at under $50 billion.

Currrently the markets seem to value Tesla's self-driving technology at about $0.

I happen to think that Tesla has about the same chances of winning self-driving as Waymo, so it should be valued, today, at least $80 billion + whatever the value of car and energy business is (let's say $30 billion).

And those are valuation today, when neither company has demonstrated a working product.

When they actually start a robotaxi service, even in very limited way, the valuation will skyrocket because the consensus is that this is a market that favors natural oligopoloy (2-3 national providers) and the revenue potential is in hundreds of billions, which would lead, eventually, to a trillion-size valuation.

Tesla has a market cap of $42bn, so an EV of under $60bn. If you believe Tesla will be the first to market with their autonomy network, it's hard to see that as anything other than a bargain. They'd potentially bankrupt Uber if they're still paying for drivers while attempting to catch up.

It would be a hell of a moat; anyone who wants to compete has to burn a ton of cash to develop autonomy and buy a massive fleet.

I don't think the market has priced it in; I think it has pretty much disregarded Tesla's claim of leadership.

It's not obvious to me that Uber stock is not also priced for a future where autonomous driving solves a lot of their current problems, do you disagree?

There are 268.8 million vehicles in the United States. Uber's software and be can use to capitalize on the majority of these vehicles. If they pay their workers a bit more and spend a bit less on the R&D the supply of workers will increase.

https://www.pbs.org/newshour/economy/why-uber-and-lyft-drive...

I think both TESLA and UBER are 20 years away from fully automated vehicles on US roads. Show me technology that supports autonomous driving from Denver, CO to Salt Lake City, UT any day of the year in any weather when roads are open to human driving and I will change my view.

From a stock valuation perspective the question then is; Which of these companies will be the most profitable in the next 10 years? Both firms seem to be spending all available cash and capital on growing their companies fast. While betting on the completion of future technology to sustain their business in the long term.

For this reason, I would short stock on both firms in the short term then switch to long positions if either of the companies had tangible indications of mullite year profitability.

The cost to borrow this garbage is going to be astronomical, just like Lyft.

Can't you just buy options instead?

The time decay will also be astronomical on options.

It’s hard to short an ipo and insanely risky. Uber could pop big on day one and wipe you out even if the price collapses later.

“The market can stay irrational longer than you can stay solvent.”

You can hold a short position for a long time.

The longer you hold it, the more it costs you in fees, but it's not like you have to cover 5 days after taking short position.

You'd be wise to first discuss this with a practitioner in the field, who will tell you unequivocally that Tesla's (and everybody else's, including even Waymo's) claims that L5 autonomy is coming "real soon now" are utter and complete horseshit.

Although, scratch that, it's your money, so yes, you should totally short it. I'll be on the other end of your bargain.

I drive a Tesla on a daily basis, so I have some idea of how close it is.

I never said I thought it would happen in the next two years (it's possible, in some limited region, but not probable) -- however I believe Elon when he says Lidar is too expensive for this application and the companies using it are betting on the wrong horse / protocol.

Also, as I said in another comment, he owns the supply chain and his network / fleet data set will be much larger for the machine learning that is needed.

> I drive a Tesla on a daily basis, so I have some idea of how close it is.

Come on, this has to be self-parody at this point.

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