Uber & Lyft – No prisoners.

The public market takes no prisoners.

• Uber’s IPO turned from a celebration into a wake as the public market refused to support a valuation that does not reflect the harsh reality of Uber’s outlook.
• Lyft was also not spared which fell another 7.4% bringing total losses since its IPO to a thumping 27%.
• Uber sold shares at $45 which immediately fell to $42 following listing.
• The banks which offer shares on a company’s behalf to investors are also often contracted as part of their service to support the shares following the listing in order to ensure an orderly aftermarket.
• It looks like that immediately after trading opened, the listing banks stepped in to support the offering, but that this did not last long.
• As soon as support with withdrawn the shares found their true level closing 7.6% down on the day.
• This is in stark contrast to Pinterest which rallied very nicely on its first day of trading and has held its valuation for the last month or so.
• Pinterest came at a much more reasonable valuation and its business proposition is fairly unique, unlike ride-sharing.
• The problem here is not that Uber and Lyft are bad companies.
• On the contrary, they are pretty well run and are leading a shake-up in how transportation is being bought and sold.
• They may well also have a profound impact on autonomous driving when it becomes reality.
• The problem is that they are currently engaged in a life or death struggle to become the dominant ridesharing platform in the USA.
• Ride-sharing companies are marketplaces where the only barrier to entry is scale.
• Consequently, each is vying to become the “go to” place to sell one’s services as a rider or to purchase a ride.
• When one becomes the “go to” place to affect a transaction, one can monetise both ends as both sellers and buyers will pay a higher price to do the transaction on that marketplace.
• This is when marketplaces become cash generation machines.
• Typically, this will occur when one company has either 60% market share or is double the size of its nearest competitor.
• In early 2017, it looked like Lyft’s goose was cooked but a series of high-profile slip-ups by Uber absorbed so much management attention that Lyft was given a chance.
• In combination with backing from Google, Lyft made the most of this opportunity, leading to two very well financed companies fighting tooth and nail for market dominance.
• This means that the outlook for these companies to start generating cash (which the market requires to have a valuation greater than $0) is very poor indeed.
• It is this reality combined with the very high valuations at which they have been listed that is putting the pressure on these companies.
• There is no sign of this abating and the maiden sets of results are certain to be awash with yet more red ink.
• Until this fight is settled, there is very little reason to invest in either company as while they slug it out rock bottom prices and incentives for drivers will continue to plague profitability.
• Uber is in the best position to win but I think investors will have a chance to pick it up at levels well below where we are today.