Uber – Boon for bikes.

Bikes and scooters likely to fare better.

• When the crisis is past it is quite possible that the asset-sharing industry will fall victim to virus-phobia as users are less willing to share given the increased risk of infection.
• Against this backdrop, bikes and scooters could fare much better.
• Furthermore, Uber’s 38% rally on the back of truly awful news clearly demonstrates just how un-investible most asset classes currently are in this time of unimaginable uncertainty.
• Another great example is the British Pound which rose sharply after the Bank of England put through another emergency rate cut.
• Increasing interest rates is the tried and tested way of defending a crashing currency in normal markets as opposed to the other way around.
• Uber held a conference call where it discussed both recent events and its current financial position.
• The news was not at all good.
  • In some of its markets, Uber has seen a 70% decline in ridership.
  • In other areas where business has re-opened, the numbers are still heavily down.
  • A good example is Hong Kong which saw a 45% decline in its business throughout its infection, but volumes have not yet fully recovered and remain 30% below their peak.
  • The company is tilting its business more towards food deliveries which makes complete sense as online ordering is skyrocketing and is likely to remain very high for some time.
  • Uber reiterated the cash balance it disclosed at its last results and reassured investors that it would survive the current crisis and bounce back.
• This means that Uber is going to go heavily back into the red but probably not as much as one would expect as it will be cutting marketing and with fewer drivers working it will be paying out less.
• Uber thinks that it can still hit profitability this year but in order to do this it would need to see a big relaxation of the competitive environment.
• This means that its competitors like Lyft, Grab, DoorDash and so on need to go out of business during this epidemic.
• If they all survive, then the minute life returns to normal, the brutal competitive dynamics will reassert themselves again and these companies will find themselves right back where they left off.
• Hence, I think that Uber may be able to fudge a profit on paper, but cash flow this year is likely to be worse than first thought.
• However, there has never been any doubt about Uber’s ability to weather the current Coronavirus pandemic.
• This is simply because at the end of Q4 2019 Uber had $10.87bn of cash on its balance sheet and a net cash position of $5.2bn meaning that the news that Uber has $4bn in cash is in no way new news.
• What is in much greater doubt is firstly, what Uber’s business is worth and secondly, what will the willingness of the general public be to return to ride-sharing.
• This virus is going nowhere and in the months and years to come we are likely to see much greater awareness and fear of infection that could deal a heavy body blow to the some of the asset-sharing industries.
• Bikes and scooters are likely to fare much better than vehicles in this environment given that there is no one else present during the ride and the touchpoints can be easily cleaned by the user prior to each ride.
• Hence, there is no rational reason for Uber to rally 38% as the long-term actually now looks to be higher risk than it did before.
• Uber was already overvalued prior to its crash meaning that there were fundamental reasons why it should have suffered this correction, albeit perhaps not this quickly.
• I suspect that a lot of greedy short positions were out on Uber betting that it would not survive this crisis taken without looking at the Q4 19 balance sheet.
• In this scenario, the news that it would survive would have triggered a huge squeeze on the shorts causing the rally we saw.
• Overall, this goes to show how un-investible the market currently is.
• There are huge opportunities to be had for investment but while the current state of irrationality exists, this is an incredibly dangerous game.
• I am still staying out.