Uber’s über IPO fiasco

This will be one for the business textbooks for years go come. Unfortunately for Uber, it’s initial public offering (IPO) is the perfect case study for all the wrong reasons:

  • The company waited nine years before its IPO. If it had delayed in order to achieve some level of a true business model, that might have been one thing. But in this case, all signs of that being achievable are vague at best.
  • In fact, the company showed no signs of a roadmap to profitability, now burning $1.8 billion a year and a staggering $10.7 billion in losses over the lifespan of the company.
  • CEO Dean Khosrowshahi was handed a compensation package tied to an inflated valuation for the company at the time of IPO. If the company reached a $120 billion in market value at IPO and remained there for 90 days, he was to be awarded $100 million. 
  • Much of the stock was in private hands already, through a network of investors, many of whom included those who were expected to buy again at the market price when the company went public. They weren’t thrilled about it, to say the least, which is why the IPO price dropped from $45 to $42 at the last minute.
  • Even the underwriters were wary of the price and were shorting employing “naked shorts,” a highly questionable tactic, which in most cases is illegal and in this case was detrimental to the overall IPO.
  • The market is souring on the Unicorns, companies with $1 billion+ valuations that emphasize gaining market share over profitability.
  • Lyft, which itself had just gone public and is Uber’s main competitor, had only days before Uber’s IPO posted less than favorable “earnings” (i.e. losses) statements.
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Can Uber survive this?  Buried deep in its S-1 prospectus, the company makes this rather pointed statement:

“Our business would be adversely affected if Drivers were classified as employees instead of independent contractors.” 

Uber S1 filing with the SEC

What this means is that Uber, which is paying a median rate of $8.55 per hour to U.S. drivers, with female drivers making on average of $1.24 an hour less than their male counterparts, is essentially admitting it cannot stay in business if it must act like a regular, grown-up company.

Days before the Uber IPO, Lyft and Uber drivers went “on strike” by turning off their apps, to protest their low wages. Driver turnover will be a main concern. If Uber is not able to address this, it could ultimately affect user experience. 

And now that the company is public, the pressure will be on. Under the glaring spotlight of earnings reports, Uber must continually convince shareholders, analysts and pundits that it is on the path to a sustainable business.

And while it is doing this, it has to bet big (via R&D investments) on autonomous driving, in the hopes it can do an end-run around (no pun intended) its driver problem. But it is highly unlikely that this is going to come soon enough. There are myriad regulatory hurdles, not to mention technological and social acceptance issues.The company claims it is modeling its business on Amazon, which focused on gaining market share and ran at a loss for 14 years before turning a profit. But Amazon started very, very modestly compared to Uber. (Amzon’s S-1, by comparison, had the goal of being “the bookseller to the world.”)

Also in Uber’s S-1 filing, the company states:

“We do the right thing, period.”

I guess we’ll see what that means in the coming months.

Sources:

[https://www.washingtonpost.com/b…

[Uber’s growth slowed dramatically in 2018

Uber’s I.P.O. Flop May Be Wall Street’s Worst Ever

Dara Khosrowshahi hasn’t yet earned his $100 million-plus stock bonus for when Uber hits a $120 billion valuation — but there’s still time for him to do it

Uber’s Top Investors 

Lyft’s First Results After I.P.O. Show $1.14 Billion Quarterly Loss

https://www.npr.org/2019/05/08/721333408/uber-and-lyft-drivers-are-striking-and-call-on-passengers-to-boycott

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Eight reasons for Apple to buy Tesla


VRBO

I have never been a big fan of mergers and/or acquisitions. What looks good “on paper” invariably ends in a much-less-than ideal situation. I can count on one hand the mergers I have seen or been involved in that had a semblance of success. I can’t calculate the number I have seen fail.

So, with that disclaimer, let me lay out the reasons I think it is a great time for Apple to buy Tesla.

  1. Tesla is a consumer technology company. Apple is a consumer technology company. Both companies are making high-end gear that has comparatively high profit margins. It’s a perfect fit.
  2. Tesla needs a White Knight. Elon Musk is a character and has done what no other human could, single-handedly changing the automotive industry and focusing the world’s attention on renewable energy as the future for transportation. But, as is the case with many founders, he has reached his capacity to govern. And with myriad other interests (The Boring Company, SpaceX), his attention span is spread thinly. Tim Cook knows operations. He can make Tesla work and make it work economically so that it can scale. And Apple has the deep pockets to make that happen.
  3. Speaking of Tim Cook, he needs a visionary, or at least a vision. Elon has laid it out for Tesla: to accelerate the world’s use of sustainable energy for transportation and the home and beyond. It’s simple, it’s bold, it’s brilliant, it’s do-able. Tim can get it done. And here’s the beauty of this scenario: Tim doesn’t need Elon to make it happen. Tim has already proven that. It has been 8 years since the inimitable Steve Jobs passed away. And Tim has done quite well by the vision that Jobs laid out. The problem is, that vision has reached the end of the road and Tim needs a new one. Tesla would set the company on the right path.
  4. So what is that vision? It’s all about the home. That’s right. Tesla gets Apple in the home. Tesla is much, much more than a “car” company. It’s ultimate vision, with Solar City and Powerwall and Tesla is a system of renewable energy from home to auto and beyond. Apple has been a laggard in getting into the home. Amazon has Alexa. Google has Nest. Apple is a follower in this space. No other company has the holistic view of providing these kinds of technologies to the home owner.
  5. It’s all about the car. OK, so No. 4 was a bit of a click-bait. Yes, acquiring Tesla gets Apple into the world that is rapidly heading to autonomous transportation. This is a no-brainer. It’s exactly the holistic systems approach to a whole new market that Apple needs. It’s way, way behind Uber, Google and others that have been investing heavily in this arena. Apple needs to not only catch up, but leapfrog the competition.
  6. Closed ecosystems. Apple has built the largest consumer tech company on a closed ecosystem. As much as it pains me to say so (coming from the world of Unix and open source), it is a brilliant strategy. By controlling every aspect of its hardware, software and services, Apple can provide a user experience that is unparalleled in the industry. Mind you, I have many, many complaints — as do we all — about shortcomings that Apple needs to fix (iTunes, iCloud are woefully outdated, for starters). But it is showing promise. It’s now on a run-rate with services to be over $40 billion in revenue a year. That’s something like No. 236 on the list of Fortune 400 companies if Apple Services were a stand-alone entity. Meanwhile, Tesla has built its own ecosystem with massive reams of data on users’ miles driven. It can provide over-the-air updates based on Big Data analysis of what customers want and need. It is unbeatable in the automotive market today for continuous improvement. And this gives it a long, long lead in the world of autonomous driving.
  7. Fiercely loyal customers. Ever talked to a Tesla owner?
  8. They are proud, they are excited, they are adamant. Same with most Apple users, although this has dipped as of late. But each company has locked their users into an ecosystem. And the users love it, because the highly-integrated experience it provides cannot be matched by their respective competitors.

  9. It’s all about “showing me the money.” Tesla is scrounging for funding, while Apple has a big, big problem to the tune of about $245 billion that it needs to invest wisely. How many stock buybacks can the company do? Investors want to see those funds used to increase their shareholder value. Apple could pay a super premium and purchase Tesla outright for about $100 billion and still have more money than most countries in the world. But more than that, it would be able to, pardon the pun, shine the headlights on the future.

Full disclosure: I own no shares personally in either company. My spouse is a former Apple employee and acquired shares during her tenure. I don’t know how many and don’t care to ask.

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What or when is the Iron Age Epilog

For a guy who spent the better part of his career in high technology, you might be scratching your head at the name of my blog. So let me explain it to you.

When I first started my career in tech, back in 1993, it was a golden time. The world looked so promising. Technology could solve so many problems. It could be the great equalizer. When the World Wide Web hit that year, we talked a great deal about the “democratization of information.”

How’s that working out do you suppose? Yes, that’s a rhetorical question.

For every action, there is an equal and opposite reaction. In the world of technology, that reaction is usually in the form of what is known as an unintended consequence.

We build stuff. We put it into the market place. We have great hopes for the goodness it will bring mankind. Only problem is, we have no idea what the side effects are until we put it out there. Genetically modified foods (GMO), nuclear power, Facebook. They all sounded like good ideas at the time. Nobody expected for a moment anything bad to happen.

But, invariably and inevitably, it does.

That’s what this blog is about: Taking a critical look at the unintended consequences of our world of technology. So why the Iron Age Epilog? Well, we have been at this game a lot longer than just the past 25 or so years.

The word “smog” was coined in 1905 to describe the combination of fog and coal-generated pollution in the dampness of old London. Smog didn’t exist before then.

Well, actually it might have. In fact, it is theorized that humans first developed lung cancer shortly after taking their newfound skills of producing fire indoors, into a cave.

So we have been at this game a long time. Iron Age Epilog is just a way to describe that the more things change, the more they stay the same.

Also, Iron Age Epilog happens to be an anagram for my first and last name. So welcome to my new blog. I hope you find it enlightening, insightful, thought provoking or at least entertaining.