Uber – Hobson’s choice.

Neither option is very appealing.

• Uber is laying off anther 435 people as it struggles with the pressure to make money but at the same time making money will kill its growth rate and possibly further savage its valuation.
• Both investing for growth and losing a lot of money and cutting back on growth and focusing on profit are likely to be badly received.
• This is yet another example of how Uber is unsuited to be a public company which is further supported by the share’s awful performance since its IPO.
• This latest round cuts deep into the core of the company with 175 leaving from product and 265 from engineering.
• Uber characterises this as a realignment driven by moving from a hyper-growth start-up to a mature company.
• In effect, it is saying that its hiring has been disorderly and resulted in duplication and redundant roles which it is now seeking to correct.
• This is also a result of the management shake-up over the last couple of years and represents the head of each division remaking his domain as he sees fit.
• This is all well and good, but it is yet another sign that Uber has lost its soul.
• Uber started life as a very aggressive company that sought to conquer the market and conquer it, it did until 2017.
• A series of scandals and mistakes led to Uber focusing all of its energies internally and completely taking its eye off the ball.
• This allowed Lyft to get back into the market and take enough market share to put pressure on Uber.
• Uber is now focused on its markets once again but the naked aggression that propelled it to market dominance has been neutered.
• Furthermore, the fact that it is now public means that it has to lay bare its performance to the public market every quarter and bear the consequences of that in its share price.
• This means that it has to be seen to be trying to make money which will mean that its ability to aggressively chase market share has been curtailed.
• Foolishly, in my opinion, Lyft also followed Uber down the IPO route (with a worse outcome), meaning that it too, has to deal with the unforgiving assessment of its figures every quarter.
• The problem is that as a public company, neither investing for growth nor working on profit is very appealing.
• Continuing to invest like crazy for growth and losing hundreds of millions of dollars per quarter will result in a negative response from the market which will wonder if it will ever make any money.
• At the same time cutting investments and trying to make money will result in much lower revenue growth, making the market question whether the valuation is too high given that maturity is coming at a level that is lower than expected.
• There is no easy way out of this problem and is the main reason why Uber and Lyft should have delayed their IPOs until the time when their valuations could be supported by more than blue sky.
• I would not be keen to invest in either company but if forced, I would choose Lyft but only on the proviso that I can balance it with a short on Uber.
• This is because Lyft is backed by Google which needs it as a route to market for its self-driving offering from Waymo.
• Hence, if things get really ugly, I could see Google buying Lyft and rolling it into Waymo.
• Softbank which is currently embroiled in the prospect of a 63% write down just 8 months into its investment in WeWork, is unlikely to offer Uber the same support.
• Things get bleaker from here.