Can Uber Live Up to All the Hubris?

EST

Uber is not a publicly traded company, but if it were, I would recommended shorting as many shares as you could borrow, beg or steal. That’s because the four-year-old purveyor of on-demand transportation is probably as insanely overvalued as venture-stage companies ever get. And that’s saying something, since, six years into a bull market, greed, recklessness and stupidity in the investment world have never been more cocksure. In December, when Uber promoted a $1.2 billion round of financing, investors effectively valued the company at $40 billion. That made it bigger than 359 of 469 companies listed on the Fortune 500 — bigger, in fact, than: Kraft Foods Group, Delta Air Lines, General Mills, CBS, Rite Aid, Macy’s, Viacom, Dollar General, Kellogg, KKR, Nordstrom, Halliburton Company, Archer-Daniels Midland, Omnicom Group, Charles Schwab Corporation, YUM! Brands, DISH Network, Aetna, ConAgra, Hormel Foods and Best Buy, to name just a few.

Earlier, when Uber was valued at a mere $18 billion, its initial backers stood to make 2000 times their initial investment. Will enough greater fools eventually come along to take them out of their shares at even higher prices? My guess is no — that if and when Uber goes public, the IPO will stumble out of the gate and lag the field at the first turn. Which is to say, the company’s ‘story’ will have peaked before the smart money ever gets a chance to unload on the rubes. That’s not to say its shares will have zero value or that Uber will not continue to grow its business. But success will have to be earned the old-fashioned way, one passenger at a time. As for those who are betting Uber will be able to grow another revenue stream by diving into the delivery business, they are in for a rude awakening, since the logistical problems are proving to be more than a little daunting. Keep in mind as well that even if the firm were to quintuple current revenues of around $2 billion, Uber’s 20% share of the take would barely qualify it for inclusion in the Fortune 500.

Violent Opposition

By then, it could be apparent that Uber’s chances for growth outside of the U.S. are far more limited than any of the giddy suckers who have been gobbling up insider shares might have imagined. As recently as six months ago investors seemed unconcerned about Uber’s bad reputation for playing hardball in cities that didn’t want them. But it’s getting harder to ignore the negatives now that the company’s increasingly vocal opponents have taken to burning cars and beating up passengers to keep the firm out. Nor is it inconceivable that the violence will spread to Uber’s home turf, as licensed cabbies in New York, Chicago and L.A. dig in their heels. At that point, an IPO might be like facing a firing squad. And if the bull market ends and the Dow is trading significantly lower, you can probably kiss Uber and a score of other dot.com 2.0 concept-companies-on-steroids good-bye.

Comments on this entry are closed.

Brian Hemeryck July 3, 2015, 4:53 pm

Way to go Rick. Anyone who is watching that disaster unfold in Greece will understand fully that this is only the beginning. That’s what happens when you elect lunatics that mismanage your money.

Steve Chuck July 3, 2015, 7:49 am

Either you leave me alone with my comments here on the board and I freely publish my valuable insight to save some from misguidance or I surely leave and will not come back. You decide at your own consequences.

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Thrilled to be rid of you, whatever-your-name-is. I’ve blocked your IP address to make it easier for you. RA

Wayne July 2, 2015, 10:17 pm

To Steve Chuck,

Hey Steve (Chuck), Rick is a perma-bear to the bone, BUT he uses a system/method that he developed to keep him “honest” so to speak. When I was a subscriber he made a lot of bullish calls. If you see him calling a “Top” in the e-minis the implication is that you should be going long to get there and then earn more profits by flipping and going short for a usually short (time wise) but fast and violent drop down for quick money.

I am a perma-bear to the bone too, but have been bullish on equites for TA reasons, the same can be said of Rick as well. Sometimes we used to fight like cats and dogs in the chat room, but he is a good guy and helped me earn my wings and develop my own method/style. Check him out you will not be disappointed, the game is hard as hell but he is stunningly accurate. Also he is right on deflation. Dollar king coming, DXY 1.4! 🙂

Happy 4th of July everyone. Remember how far we have come and how fast we have fallen. Woe to the vanquished.

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Thanks a million for the support, Wayne!

R

Steve Chuck July 1, 2015, 8:47 am

Rick,

Show me a small single piece of hard evidence of your long awaited deflation? The great bull has smashed your expectations.

Regarding all your other inquiries and assumptions in your answer I will get back to you.

Regards,

Chuck

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Europe and Japan, for starters. Pretty trivial examples, I know, and maybe that’s why they didn’t occur to you. Some might even suggest that gold’s slide from $1920 to a recent low of $1166 is not exactly a harbinger of runaway inflation. I don’t know whether any of this qualifies in your book as “a small single piece of hard evidence” of deflation, but even to the man in the street — or to the village idiot, for that matter — it would not be chopped liver.

You completely misunderstand deflation because you evidently have not considered its main symptom: an increase in the real burden of debt. Apply that logic to the coming bust in, for one, public employee pensions, and even you may start to figure it out.

Is Steve Chuck/Chuck Steve your real name? There’s no point in having this dialogue if you’re hiding behind a pseudonym. RA

Steve Chuck June 30, 2015, 7:56 am

Rick,

You have been fighting the great bull for as long as I have known you. I warned many times people here that they should be listening to you very cautiously. I read again towards the end of your article some expectations on Dow’s demise. Rick please give up on this meaningless fight and concede that you have been wrong for a big. I know and we all know that the market will correct. But the great bull will be with us for many years to come. I have warned you and told you to stop your fight couple years ago. There is a Chinese saying ‘appetite for fighting never goes away when you always get defeated for a big.

Yes eventually the big bull will correct at some point. But then you will not be alone. I will warn everyone who has been my loyal follower ever since that they should cash out. But until then the great bull will crash every one of you who stands on his way to make people’s dream come true. So you are no exception Rick.

Later I will entertain some thoughts on when we could see a correction or signs of correction. Reason stays with me. To else good bye.

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You haven’t “known me” at all, Steve; rather, you have been lurking for years, scanning Rick’s Picks headlines but never paying for my forecasts or access to the chat room. Those forecasts have been bullish as often as bearish — I put out an 18830 target for the Dow just two weeks ago — and their accuracy is a matter of record.

Nor, evidently, did you “know me” in the mid-1990s, when I was virtually alone on the then-lunatic fringe, writing about and predicting deflation. Although it appears that you took my ‘Black Box Forecasts’ when it was distributed free by MarketWise in 2001-03, I would surmise that you missed its point, so eager were you to see my forecasts go awry.

Let’s compare notes in a year. In the meantime, considering paying up so that you can enjoy the same great benefits as my subscribers. RA

ps: If you’re going to post in my forum, I’ll thank you to sign your real name. That would show that you have some integrity.

mava June 29, 2015, 7:12 pm

What about drivers who have relatively new vehicles? Will the manufacturer honor that warranty on a vehicle for hire? I think not, it only about the manufacturers waking up to that.

John Jay June 29, 2015, 1:40 pm

Mava,

Yep, and if an Uber driver gets in an accident with a fare passenger getting hurt?
Your insurance company is very likely going to walk away from the claim if you are picking up fares as a business, and your policy does not cover that.

And speaking of cabs, the junkyards are filling up with the old Crown Victoria type cabs.
The little Prius type cars are the new vehicles for cabbies.
Everyone is adjusting.

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Uber offers commercial insurance coverage to its drivers, although there are ‘gaps’ in the coverage that have been noted in news stories. RA

mava June 29, 2015, 11:56 am

While I expressly support Uber for destroying licensed cabbies who treat us all like trash because they pay the government for “protection” (beating up the competition), unfortunately, as far as reality is concerned, I agree that Uber grown too fast, too high. They now have to fall. They should have been concentrating their effort on showing us all that violence is no way to live, if they wanted the true growth. But, who said they want the true growth? Who wants the true growth in a world where everything is fake?

Also, I don’t think Uber business model is even viable. If one takes into account depreciation of vehicle, and all the risks involved, then it is simply not profitable to compete with cabbies.

Cabbies are mad because they are too stupid to understand this. They have nothing to worry about. Their willingness to transport us in disgustingly crappy and dirty vehicles in combination with legal protection creates a condition unprofitable for anyone else. It is exactly the same as the “Bad money drives out the good money” in economics. It’s the post office situation all over again. To win, they only need to show up to work.

The true reason Uber went up is because they are not the ones shouldering all the expenses, and the ones who do (drivers – owners), are just not all that bright to calculate them right. At the price level set by the cabbies, the driver-owners can really only afford dirty old vehicles driven to extinction if they want to survive.

That is what the monopoly does, – a condition that is not really breakable. And a true monopoly is necessarily the one created by the government.

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Very interesting point, Mava — that Uber drivers are too stupid to realize that insurance, maintenance, depreciation, taxes, registration fees and all the rest reduce their net income on an $8 fare to maybe 39 cents. (It is predictable that they’ll begin to figure this out — to the penny — when they need a Toyota water pump and timing belt replaced for $700.) Such niggling details would of course be of no concern to ‘insiders’ who hope to cash out on the IPO. RA

John Jay June 29, 2015, 12:47 am

Re: Uber

At this point, anything is possible in the markets.
The discipline that old time real interest rates enforced is long gone.
As I remember some Market Maven saying many moons ago…………………
“It is a momentum market, check your brains at the door, and trade like a robot.”

When the major investment banks have access to trillions of dollars at ZIRP, and a bench full of young guys that have always played fast and loose, sure, Uber can be worth 40 billion or 400 billion.
Why not, who is going to stop them, the Fed, the SEC, the Justice Department?
They have all those agencies in their pocket, “like so many nickels and dimes”, a la Don Corleone.

And look what happened to ZB/ZN tonight.
Trouble in Europe?
More and more talk about the multiple “Chinese Bubbles”?
US Treasury paper gets real popular real fast!

So, if you can’t beat them, join them!
Find a trend and take a safe and sane position, suitable to your risk working capital.
Make some money from the shreds the Orcas of Wall Street leave to you.

For right now, the USD occupies the least crazy padded cell in the Global Social/Economic Psychiatric Ward we are confronted with.
For right now, anyway.

In the future?
If the fountain of free money and benefits from DC ever stops?
Well then that will be something else entirely.

I caught that old 1974 movie “Soylent Green” the other night on cable TV.
I remembered the “Soylent Green is People” ending.
But I forgot how US society was portrayed in the film.
Everyone is poor, at night you have to walk over the hundreds of homeless people sleeping all over the streets and staircases leading to your crummy apartment.
Everyone lines up to get their Soylent Green ration, and when it runs out they riot, and the Police scoop them up with skip loader/garbage trucks.
That stops the riot!
And the CEO from the Soylent Corporation has hot water for his shower in his luxury digs!
Which astounds the character Charlton Heston portrays!
“You have hot water”!!!!!!!
So, if the free money stops, right to a Soylent Green/Elysium scenario.
But so far, so good!

Good night and good luck!

Bu June 28, 2015, 6:59 pm

I wouldn’t be too sure of a “continuation of a very boring summer on Wall Street”, Rick.

The VIX looks like the crowd have already been lulled far enough into complacency for all hell to be let loose now!

Three terror attacks in one day after it closed the gap…..anyone could be forgiven for wondering if it’s all being stage managed!

All the World’s a stage.



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