UBER’s $84 Billion IPO Trades on Friday – Buy or Pass?

UBER is set to begin trading on the New York Stock Exchange on Friday. This IPO Is getting a ton of attention for a couple of reasons.

• UBER is a super popular company and almost everyone I know uses their app.
• Valued at $84 billion this will be the largest IPO of the year and the largest since 2014.

Naturally, the Street is buzzing with anticipation. Here’s the big question on the UBER IPO.

Is the UBER IPO a Buy or Pass? Here’s my take.

The Good about UBER
UBER is one of the most innovative companies we’ve seen in a long time. UBER was ranked as the #2 most disruptive company last year behind SpaceX. UBER’s ride service app completely disrupted the traditional taxi industry and created a whole new industry and service that didn’t exist before its creation.

I personally love the UBER app. It had a profound effect on my city lifestyle back in the day, making it so much easier to get around the city. I still use it all the time in the suburbs.

Today UBER has over 75 million active global users and operates in more than 80 countries. UBER is a true American success story and this is the kind of company that dreams are made of.

The Bad About UBER

From a user perspective UBER is awesome but this company and IPO have serious issues.

The financial picture is a disaster: UBER is bleeding cash – hard. The company posted a loss of $2.2 billion in 2017 and $1.8 billion in 2018. This company is at least a decade away from showing a profit. And while its true younger, high revenue growth companies don’t need profits to succeed (Amazon is the best example) UBER’s losses are going to cause serious cash and funding issues within a few years if not corrected – which is no easy task.

Speaking of high revenue growth, UBER’s insane revenue growth in the last few years has ‘painted over’ these huge operating losses. But now – UBER has a problem with that model because revenue growth is slowing dramatically.

As you can see in the chart below, the pace of revenue growth has plunged from 75% to 25% in the last year.

This huge decline in revenue growth means profits become a lot more important right now. The clock is ticking.

UBER is stupidly overvalued: With no profits and revenue growth slowing, this IPO is stupidly over valued at $84 billion. I don’t think UBER is worth anywhere near that. Also, if this company is really worth $84 billion, that means for a shareholder to double their money, UBER has to be worth $170 billion. What are the chances of that happening? That’s an insane value close to a quarter trillion dollars for a company that loses billions ever year.

The Lyft precedent is bearish: UBER’s biggest competitor is Lyft. Lyft went public last month with similar metrics and valuation – and shares are down 20%. Not a bone crushing loss but it shows the IPO was overvalued.

The modern tech IPO is loaded with scams: And finally, a lot of these modern tech IPOs are a complete scam. A lot of them are nothing more than exit strategies for insiders and early, private equity investors to exit their investments with huge gains while dumping highly over valued shares onto ‘regular investors’ who don’t understand how to value a company.

We see this happening all over the street with so many super hot, tech IPOs that have gone up in smoke. Two recent examples: Lyft and Snapchat. Snapchat was way overvalued at the IPO and shares are down 65% in two years. Lyft has been trading for less than a month and shares are down 20%.

The bottom line – be very cautious on these over hyped IPOs out of Silicon Valley.

The Verdict on the $84 Billion Uber IPO

UBER is such a cool company and I love the app and service. But this IPO has major red flags. I think shares are grossly over valued. Proceed with caution and if you have to get in look to be active on major weakness or pullbacks.

If anyone has questions or comments please say hello.

• mike@vodickagroup.com
• mikevodicka@gmail.com

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