On May 10, 2019, a year ago this past Sunday, Uber held their IPO and officially became a public company. A casual observer might assume they’ve made it, that Uber is now “permanent” like Google and Facebook—but you’re gonna wanna keep watching.

There are two things to discuss here: the unique history (and strengths) of Uber, then the forecast (and weaknesses) of Uber’s post-IPO future.

Uber Cool

One mark of a good invention is that you can’t imagine the world without it, and Uber definitely meets that standard by now. It’s far from the first, but Uber is the perfect example of a platform: a place that connects supply and demand without supplying or demanding any of it. Uber is also one of the best-timed and best-aimed platforms in history; the service went live in SF in 2010 (around the same time mobile was becoming ubiquitous) and disrupted a market that badly needed new options and couldn’t produce them on its own.

Notice: most of the tech companies we discuss on a daily basis (including social media) are platforms, and some of them are among the wealthiest companies in the world. This isn’t a coincidence. Platforms are, in essence, giant middlemen; they connect “buyers” and “sellers” and take a cut of the trades, whether directly (fees) or indirectly (advertising). Digital platforms can be so wealthy because (A) they’re playing middleman for the whole world and (B) nothing scales as cost-efficiently as software. This is also how platforms have uprooted entire industries in a couple short decades; if that sounds like hyperbole, consider that…

🏨 The world’s largest hospitality provider doesn’t own any real estate. (Whaddup, Airbnb?)

📦 The world’s most valuable retailer doesn’t own any inventory.
(Que pasa, Alibaba?)

🎮 The world’s largest software vendors don’t create the software.
(An Apple a day Steams the Google away.)

There’s normally no reason to notice platforms as such; many seem just like the stores and services and social hang-outs of normal life. But Uber (the largest taxi company with no taxis) is a fascinating exception: we’re painfully aware of its platform-ness because it’s causing us to do something we’ve avoided all our lives, which is getting into cars with strangers. Getting used to Uber was definitely a psychological transition, yet Uber’s service had clear advantages—and both things just made it easier to talk about. (You could say the same about Airbnb, if not to the same extent.)

Historically, Uber has done two things especially well: expand to new locations and raise money. In other words, Uber has done one thing especially well: grow. The value of expanding reach (i.e. accessing more customers) to any possible extreme is obvious for a tech company, but fundraising is a little different. Because you have to give investors something (usually equity) for the money you take, conventional wisdom says to raise money only when necessary and/or when the potential growth value is greater than the stake you trade for it. Still, Uber has taken Series funding for a fifth of the alphabet (all the way up to F) and raised about $20 billion in total—which is an incredible amount of money to take (in trade) from investors, unless you somehow needed to take it.

Smell something fishy yet? We’ll spill the sea: Uber isn’t profitable. In fact, Uber has lost billions of dollars in each of the last few years. Yes, a ton of money flows through Uber—but profit is defined the same way for everyone (revenue minus expenses) and Uber has to spend more than they can make.

Uber Gloom

Uber’s growth was only sustainable because of a loophole in investment logic: valuation over value. In strict business terms, Uber has negative value because it loses money instead of making it—but in speculative business terms, Uber’s valuation has kept growing because investors were willing to invest more and more money for smaller and smaller equity stakes. Sometimes, this kind of investor speculation is prescient; Facebook didn’t make money for a long time, but look at it now. The difference between Uber and Facebook (for example) is that Facebook always had a path to profitability even if it wasn’t always profitable; Uber isn’t profitable and hasn’t convinced skeptics it will ever be.

An IPO is a red-letter day for any company, but it’s not a guarantee of safety or longevity. An IPO means that the public is your investor now—and the public is very, very different from a venture capitalist. The public has zero interest in spending money to keep you alive; in fact, the public will eat you alive if you don’t bring them money. The public is interested in stock prices, not VC pitches—and stock prices tell the truth for the whole world to see.

In September of 2018, Morgan Stanley and Goldman Sachs pitched Uber’s valuation at around $120 billion. On Friday, May 10, 2019, the day of Uber’s IPO, the valuation was around $76 billion. The following Monday, Uber posted the largest first-day trading loss in history: a staggering 11% drop in stock price. At this writing, Uber’s valuation (in the form of market cap) is hovering around $53 billion. We sense a trend.

Uber swears profit will come by the end of 2020; if it doesn’t, grab some popcorn. Maybe they’ll figure it out—but this might be the hardest year imaginable for a comeback, especially when their P&Ls are already so many miles behind.

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