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Uber (UBER) became public in a bid that was not a success, as investors face uncertainty over trade negotiations with China, while Lyft (LYFT) was a disappointment too, using a sweet word, to say the least.
The combination of slower growth, increasing losses (as recently as), questions about a viable business model, and simply many competitive threats easily prevents me from offering this offer, even if it has been priced at a reduced price. As a result, I am happy to follow closely the evolution of this story, while wishing to see a real leverage on the results before jumping on board.
Put the world in motion
The header above represents Uber's mission. Just push a button to drive. In addition to this basic product, which basically does not require any explanation, the company also sees huge possibilities for logistics and meal delivery.
The main activities are classified as Personal Mobility, which includes carpooling and new mobility, with the latter focused on electric bicycles and scooters. Gross bookings through the platform surpassed $ 41 billion last year, with Uber generating $ 9.2 billion in sales, more than 80% of total sales, although growth slowed 33% on an annual basis last year. Despite these enormous figures and the 26 billion kilometers traveled, the penetration rate in all markets remains very low, averaging 2% on average.
Uber Eats is the second major segment because it has been the fastest in recent years. Revenues rose 149% last year to $ 1.46 billion. Uber Freight is the third category, effectively classified in the "other" paris, with revenues multiplied by five, to reach 373 million dollars. Uber believes in the growth of the ecosystem, as more activities allow it to recruit more drivers and better use of deployed capacity, as well as synergies with displaced people, alongside meals or food. freight.
By the end of 2018, the company had 91 million monthly active platform users, accounting for 2% of the population of the major markets it operates on. In the last quarter of 2018, approximately 1.5 billion trips were made, which indicates that the frequency of use is quite high, many having taken into account the application and the use of the service in their daily lives.
IPO process and appraisal interviews
Uber originally intended to sell 180 million shares at a price of between $ 44 and $ 50 per share. The lukewarm demand and uncertainty meant that the stock price was $ 45 the action. Despite the fact that the price was in the lower end of the range, the shares fell to $ 42 and changed at the time of writing.
At the bid price, Uber generates gross proceeds of $ 8.1 billion, the company currently having 1.68 billion shares outstanding. In addition to the gross product of the offer, PayPal (NASDAQ: PYPL) will make an investment of half a billion at the price of the offer, Uber will pay about 300 million dollars to its drivers in the form of a one-off bonus.
At bid price, these shares are valued at $ 75 billion, although an estimate at $ 42 is down to $ 70 billion. On the basis of current net liquidity and current supply, it is envisaged that the company has net cash of approximately $ 10.5 billion following the IPO, which implies that the assets of operations are valued at $ 59.5 billion.
The company has found a large, rapidly growing revenue base to "justify" this valuation, although the losses are also huge. Revenues reached $ 3.8 billion in 2016, with the company recording a $ 3 billion operating loss. Sales more than doubled to $ 7.9 billion a year later, while losses reached $ 4.1 billion, but declined slightly. This trend continued in 2018, with revenues up 42% to $ 11.2 billion and losses down to $ 3.0 billion. Based on last year's business figure, operating assets are trading at 5.3x sales.
Trends in sales growth and margins in 2018 are worrisome. While the growth rate of 42% year-on-year was solid, we should note that sales growth in the first quarter was still 69% last year, while growth slowed to 22% in the last quarter. In fact, the sequential growth in the fourth quarter of 2018 was about one percent, while it is a fast growing company and the fourth quarter is seasonal. This is worrisome, with an operating loss of $ 478 million in the first quarter of 2018 continuing to increase sequentially to $ 1.05 billion in the last quarter.
Preliminary figures for the first quarter show sales between $ 3.04 billion and $ 3.10 billion, suggesting growth of about 19 percent year-over-year. Operating losses range from $ 1.1 billion to $ 13 billion, which is simply very disappointing, as the loss was less than half a billion in the same period last year. Although revenues now reach $ 12 billion a year, suggesting a "simple" multiple of 5 times the turnover, valuations are simply high and the margin potential of this business is not comparable to that of all other technological names.
In comparison, Lyft (LYFT) saw its price fall to $ 51, which gives this small par valued $ 12 billion of operating assets. Based on the number of first-quarter annualized sales, Lyft is now trading at 4x sales, but the difference is that Lyft almost doubles its sales on an annual basis, while Uber's growth rate is stuck around 20%. In addition, both companies have similar operating loss rates, although Uber is investing heavily in its efforts, including autonomous driving.
On the basis of relative valuations, Lyft appears to be a positive element, although the question of how much of the losses reported by Uber may be related to new businesses, but the reality is that revenue growth of only 20% is not so inspiring. In fact, according to Uber, nearly half a billion dollars of R & D can be attributed to the development of new technologies, suggesting that the losses of the main business are very important.
Risk factors, do not buy the dip
The risk factors for this offer are obvious and plentiful, including heavy losses, a fairly rapid slowdown in growth, fierce competition from names like Lyft and many others, but the most important risk is perhaps the of autonomous driving, Uber may miss the boat on it. This suggests that technology companies and / or large manufacturing companies could make the traditional Uber business model potentially obsolete.
Other risks include difficult relationships with drivers, the limited number of paid drivers and the problems the company has with the cities and territories in which it operates. The model in which drivers are classified as independent contractors could be greatly compromised if the IRS or similar tax authorities abroad designate these drivers as employees. For the moment, it is very easy to avoid that actions without a trigger are really optimistic, apart from market potential and strong positioning.
Disclosure: I / we have / we have no position in the actions mentioned, and we do not intend to initiate a position within the next 72 hours. I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose shares are mentioned in this article.
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