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Buffett Proposed $3 Billion Uber Investment But Deal Crumbled

125 points by tristanj 8y ago

bklyn11201 8y ago
Two questions: 1) Uber really needs 2008-style, extreme-terms cash right now? 2) Buffett team must be fairly annoyed with Uber's negotiating to leak the story?
- valuearb 8y ago
  1) No, this is old news. Uber has years of cash. 2) if Buffett was annoyed he would not be commenting.
  - bertil 8y ago
    Well, Uber lost 4 billions, and has 6.5 in the bank + 1.5 promised, so two years. “Years” is technically correct, but with their burn rate and at this scale, I would not snub billionaires in their position. I understand (from drawing similar models at Deliveroo) that you can actually predict quite well your demand, efficiency, maturity by city and have rather accurate loss prediction, and I suspect that Uber expects to loose less than 3 billions in 2018 (and try very hard to be profitable in the last quarter of 2019 prior to their IPO), and with that in mind, “years“ makes more sense, but… that’s like when a test pilot says ‘things are fine’ inches from disaster: still not a ride for everybody.
gtt 8y ago
Could someone explain what got Buffet interested in Uber?
- matte_black 8y ago
  Everyone makes mistakes now and then.
  - toomuchtodo 8y ago
    Case in point: Buffet recently sold all their IBM holdings. “Buffett’s stake in IBM plunges 94% to about 2 million shares” https://www.bloomberg.com/news/articles/2018-02-14/warren-buffett-s-berkshire-cuts-almost-its-entire-stake-in-ibm https://www.bloomberg.com/news/articles/2018-02-14/warren-bu...
    - bbaumgar 8y ago
      Care to explain why you believe this was a mistake? Opinions of IBM's future performance aside, even if he were right we wouldn't know until years from now - value-based investing takes a while to pan out.
      - Someone1234 8y ago
        The video in the article explains it pretty well. In essence he over-valued IBM and then ignored their decline for years, even while the company's core business continued to dry up. He finally just exited, taking huge losses in the process. The problem with value investing is that it works great for traditional companies with normal products, but many of the fundamental analysis models fall apart with "tech" companies who's largest asset may be the brand itself. For example Uber, they own few vehicles, have few employees, and no exclusivity. How do you run a fundamentals analysis on that? A lot of traditional models would tell you that company is worth near nothing.
        fwdpropaganda 8y ago
        > For example Uber, they own few vehicles, have few employees, and no exclusivity. How do you run a fundamentals analysis on that? A lot of traditional models would tell you that company is worth near nothing. Don't forget almost no barrier to entry. It's relatively easy to go from nothing to be a local player dispatching cars in a small neighborhood which your friends drive.
        matte_black 8y ago
        Agreed, if Warren Buffet was just starting out today I doubt he would go for a pure value investing strategy.
- dpiers 8y ago
  Uber grew net revenue from 2017Q1 to 2018Q1 by 67% to $2.5 billion, which is unprecedented at that scale, and did it while significantly reducing losses. Uber is either the dominant player, or has a stake in the dominant player, in every rideshare market around the world. A lot of governance and litigation risks have been mitigated or reduced in the last year (CEO leaving, very public board infighting, Waymo lawsuit, etc). The drama last year caused a depression in valuation, but the financials remained solid and the business has good management, leading to an opportunity for Buffett to acquire a stake at a discount. Full disclosure: I work at Uber, but the numbers I quoted are public and the opinions are my own.
  - mlthoughts2018 8y ago
    Do you know if this revenue figure accounts for the “top line revenue problem” (inclusion of government charges, refunds and fare promotions in top line revenue) mentioned for the 2017Q4 numbers at the 13th Naked Capitalism article [0] on Uber? Incidentally that article also casts doubt on whether recent slowing of cost growth is material to profitability. It doesn’t look to be fully updated through 2018Q1 though. [0]: < https://www.nakedcapitalism.com/2018/02/can-uber-ever-deliver-part-thirteen-even-4q-cost-cuts-uber-lost-4-5-billion-2017.html https://www.nakedcapitalism.com/2018/02/can-uber-ever-delive... >
    - dpiers 8y ago
      I can't comment on Uber's financials or accounting practices, but I can add some context on the author linked: Hubert Horan has published numerous articles with very negative outlooks on Uber over the last few years. A good example is one of his original articles from 2016 [0], which calls Uber out for having -143% profit margins in 2015. In 2015Q1, Uber's revenue was $287MM and loss was 385MM. Horan claimed there was "no evidence that Uber’s rapid growth is driving the rapid margin improvements achieved by other prominent tech startups as they “grew into profitability.”" However, 2018Q1's revenue was 8.7x and losses were only 1.2x the 2015Q1 numbers. Horan was clearly wrong, and underestimated the potential of the business. I believe he still doesn't 'get it'. If you don't believe in the potential for any growth business, the numbers can look bad on paper, but time will decide who will be vindicated and who will be disproven. [0]: https://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html https://www.nakedcapitalism.com/2016/11/can-uber-ever-delive...
- morley 8y ago
  According to the article, BH was seeking terms that had a big upside and protection against downside: > Under the proposed agreement, Berkshire Hathaway would have provided a convertible loan to Uber that would have protected Buffett’s investment should Uber hit financial straits, while providing significant upside if Uber continued to grow in value, said the people, who spoke under condition of anonymity because the discussions were private.
  - clairity 8y ago
    that's the standard way buffett ferrets out companies in distress that he can invest in with lower risk than anyone else can get (see gm bailout). if i had to guess, buffet realizes that self-driving cars are many more years away than uber has runway, and regulators are shifting to classify drivers as employees, increasing labor costs. profitability gets pushed out, creating a cash-flow problem for uber, which buffett can take advantage of.
    - gtt 8y ago
      But. in such scenario, how can Buffet profit from under-performing Uber?
      - flyinglizard 8y ago
        He’s playing a very long game.
        gowld 8y ago
        Not really, he's making a convertible loan so that he gets paid in the short term, skimming VC bubble money.
      - deleted 8y ago
        [deleted]
      - MrFantastic 8y ago
        It's a loan so he'd probably be in the 1st tier to get paid back if Uber went bankrupt. The equity would just be a bonus. Uber is currently positioned to win when they can get self-driving cars. Drivers are Uber's biggest expense.
- TAForObvReasons 8y ago
  Buffett's general MO is to find distressed or other undervalued companies and offer a large chunk of money, negotiating very favorable terms. Take their deal with Bank of America, wherein they received preferred stock which paid 6% annual dividend (so they end up higher up the capital structure than the common) as well as a dilutive warrant to purchase 700M shares of common stock at a strike price of about $7 at any time until 2021 (currently at 29.49) The article answers why the deal went sour: > Coming so soon after that cash infusion, Buffett’s attempt to take a stake in Uber while it was on the rocks may have been too late to squeeze favorable terms from the company. Buffett probably couldn't get the type of deal he wanted, mostly because they were able to secure cash independently.
  - duxup 8y ago
    >Take their deal with Bank of America, wherein they received preferred stock which paid 6% annual dividend (so they end up higher up the capital structure than the common) as well as a dilutive warrant to purchase 700M shares of common stock at a strike price of about $7 at any time until 2021 (currently at 29.49) Damn 6% and more stock at a discount.... DAMN.
  - taneq 8y ago
    > Buffett's general MO is to find distressed or other undervalued companies and offer a large chunk of money, negotiating very favorable terms. Are there other viable strategies for a large investor? I can't imagine it's a very good plan to pay market value for shares in companies that are already currently very successful. By definition you're buying "at the top".
    - probe 8y ago
      I think Buffett et all are betting Uber is not “at the top” and still has significant room to grow. If new investors are buying at a 62B (recent tender offer), they’re expecting some level of increase over the next 18 months and when Uber goes public.
    - pg314 8y ago
      Buffett bought 75 million Apple shares last quarter, paying market price for a very successful company. His investment philosophy is based on making the distinction between the market price of something and its intrinsic value, and looking for discrepancies between the two [1]. [1] https://www8.gsb.columbia.edu/articles/columbia-business/superinvestors https://www8.gsb.columbia.edu/articles/columbia-business/sup...
- CtrlAltT5wpm 8y ago
  There are multiple positive and negative reports on Uber's financials in several publications, but the one(s) I've found most convincing are those put forth by Hubert Horan. He's written a 14+ part series [1] on both the financials and the general reporting surrounding Uber, along with an academic paper [2]. He makes compelling points, and is pretty damn thorough. It's impossible to know for sure, but it may have swayed his decision. [1] - https://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html https://www.nakedcapitalism.com/2016/11/can-uber-ever-delive... (several more on the site) [2] - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2933177 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2933177
  - valuearb 8y ago
    Hubert has been wrong since the beginning, he’s never had detailed enough financials to support his wild conclusions. Buffets offerto invest is just more proof of how wrong the naked capitalism series has been.
    - lukewrites 8y ago
      Can you link to any rebuttals of Horan's argument? I found his articles to be pretty convincing, but am open to reading the other side. I'm not a finance person, but it seems like how Buffett wanted to hedge his investment would mean that he isn't so rosy on Uber that he's willing to go in without guarantees.
      - valuearb 8y ago
        The available financials (read them) don’t allow backing out Uber’s cost if investing in side businesses, or international customer acquisition costs, or per market profitability. Yet he made bold claims in all those areas.
  - lukewrites 8y ago
    I thought those were interesting articles (that coincide with my own heavy skepticism towards uber), but see you got heavily downvoted. Are you aware of/have links to criticisms of Horan?
- kyleblarson 8y ago
  His play on Goldman during the financial crisis is pretty similar: https://qz.com/67052/heres-how-warren-buffett-made-3-1-billion-on-his-crisis-era-bet-on-goldman-sachs/ https://qz.com/67052/heres-how-warren-buffett-made-3-1-billi...
- gok 8y ago
  Reportedly because he really likes Dara Khosrowshahi.
- rajacombinator 8y ago
  With no specific knowledge and without having read the linked article, I can guess based on Buffett’s MO: he smelled blood in the water and potential to get a really sweet deal.
- TangoTrotFox 8y ago
  If Uber can avoid going bankrupt until self driving vehicles become available, they're likely to become one of the most profitable and expansive businesses - perhaps that ever existed. Of course the two conditionals there are the game. They need to not run out of money, and self driving vehicles need to come into play. The article is sparse on details, but it looks like he was trying to angle his loan to get the both of best worlds. If they end up being unable to keep afloat his investment would have been "protected", whatever that means. Yet if they did manage to reach their goal, then he likely would also have had a major share. Win-win from his perspective. And lose-lose from Uber's, unless they were unable to find any other source of funding. And since they were, the deal fell through. It looks a lot like buying billions of dollars of tickets for a trillion dollar lottery, with a clause that you can get your money back if none of the tickets end up being a winner.
- bunkydoo 8y ago
  Margaritaville
- thisisit 8y ago
  It is easy to frame this deal as the vindication of Uber's business model. But it is not. Especially without knowing who approached whom for the money. It was reported that Uber was looking for loans during the same time: https://www.bloomberg.com/news/articles/2018-03-09/uber-calls-lenders-for-1-25-billion-in-wall-street-shortcut https://www.bloomberg.com/news/articles/2018-03-09/uber-call... And if Uber could get it from a known investor it was a big win for them. Buffett's name has it's weight, as posited by your question. Now around the same time Berkshire had $116 billion in cash and Buffett wanted huge deals: https://in.reuters.com/article/berkshire-buffett/with-116-billion-cash-buffett-says-berkshire-needs-huge-deals-idINKCN1GA1AQ https://in.reuters.com/article/berkshire-buffett/with-116-bi... The problem was finding the sensible purchase price. Buffett is an astute businessman who always looks to buy a dollar for the less than that. And in this case the price was: Under the proposed agreement, Berkshire Hathaway would have provided a convertible loan to Uber that would have protected Buffett’s investment should Uber hit financial straits, while providing significant upside if Uber continued to grow in value, said the people, who spoke under condition of anonymity because the discussions were private. Without knowing the inside of the deals it is difficult to comment but convertible loan normally turns to equity at next funding round. So, it dint matter if Uber's next round was a down round, Berkshire would have taken some equity in the company. Additionally, if things turned ugly or at the loan's maturity Berkshire's loan would have priority to claim the company's asset.
- patio11 8y ago
  You are one of the fairly few companies in the world who a) can use $3 billion and b) do not have ready access to the capital markets. I happen to be one of the fairly few people in the world with $3 billion and virtually unlimited flexibility to deploy it how I see fit. Yours is clearly a valuable business with strong cash flows and a lot of defensibility; that's worth something. Want my money? It's not going to be cheap, but it's available in quantity.
- MrFantastic 8y ago
  Uber has a great MOAT and they were having a financial crisis a few months ago. This is Buffett's wheelhouse. He wasn't just trying to buy equity, it was convertible debt which is has a stronger guarantee.
fwdpropaganda 8y ago
How is it possible that Uber has $6.5bn in cash? Weren't they losing almost $4bn a year?
- TAForObvReasons 8y ago
  https://www.crunchbase.com/organization/uber https://www.crunchbase.com/organization/uber > Total Funding Amount: $21.7B The real question is how companies thought it was a great idea to invest in them to the tune of $21.7B.
  - huangbong 8y ago
    Worldwide consumer transportation monopoly
    - jellicle 8y ago
      With no barrier to entry and selling $10 rides for $5.
    - fwdpropaganda 8y ago
      There's no barrier to entry. Some people claim that there is a barrier to entry which is that "Uber has all the drivers". However every big city I go you see local players. Not only Lyft and Yandex, but regular cabs, or regular cabs dispatched by an app (as opposed to telephone) etc. No barrier to entry.
      - nstart 8y ago
        Agreed on this one. I'll also add, low barrier to clone but high barrier to localise. Both are not good for Uber. Sri Lanka launched it's own (privately owned) ride hailing/sharing app ahead of Uber entering our market. A lot of drivers work with both companies, but Uber is being squeezed out bit by bit. There's a lot of money in the local player to be sure, but even then, it's crazy to think that the giant international player couldn't take on our local market all that well. This is despite the local player doing all the hard work of training the market to understand how this concept works. Both drivers and riders needed significant investment. Uber came into a primed market and failed to capture it despite burning money on ridiculous bonuses for drivers at the start. Recent sales in Asia prove this inability to capture localised markets is not a one off.
known 8y ago
Buffet investment tricks are subtle https://en.wikiquote.org/wiki/Warren_Buffett https://en.wikiquote.org/wiki/Warren_Buffett
davnicwil 8y ago
Here's a question: is there a kind of equilibrium that private companies like Uber can risk breaking in terms of ultimate public valuation by staying private for too long and taking too much investment pre-IPO? If would-be shareholders have seen Buffet type investors going in (or attempting to go in) with absolutely colossal cash injections pre-IPO, might it appear like too much of the explosive growth potential has already been squeezed out before the IPO? And therefore there is less incentive to buy the stock speculatively, making the stock price lower at IPO. Isn't this a bad thing for investors looking to get in late stage? Put another way, could Buffet's investment have actually risked its own likelihood of eventually paying off, due to its size?
- alehul 8y ago
  It could be the case, but quite unlikely. As Buffett is a value investor, there's a very simple set of rules he follows that I recall learning from a similar-minded portfolio manager: 1) set a price the company should be valued at 2) pay less than that price 3) don't be wrong So while Buffett's investment would be colossal and substantially raise the price of the company, all that investment says is that he thinks it is currently undervalued, and he likely isn't trying to throw enough money in Uber's direction to fix the entire pricing error, from a finance standpoint. There would actually likely be more damage caused if value investors publicly turned down investing in a pre-IPO company.

125 points by tristanj 8y ago

Two questions: 1) Uber really needs 2008-style, extreme-terms cash right now? 2) Buffett team must be fairly annoyed with Uber's negotiating to leak the story?

valuearb 8y ago
1) No, this is old news. Uber has years of cash. 2) if Buffett was annoyed he would not be commenting.
- bertil 8y ago
  Well, Uber lost 4 billions, and has 6.5 in the bank + 1.5 promised, so two years. “Years” is technically correct, but with their burn rate and at this scale, I would not snub billionaires in their position. I understand (from drawing similar models at Deliveroo) that you can actually predict quite well your demand, efficiency, maturity by city and have rather accurate loss prediction, and I suspect that Uber expects to loose less than 3 billions in 2018 (and try very hard to be profitable in the last quarter of 2019 prior to their IPO), and with that in mind, “years“ makes more sense, but… that’s like when a test pilot says ‘things are fine’ inches from disaster: still not a ride for everybody.

gtt 8y ago

Could someone explain what got Buffet interested in Uber?

matte_black 8y ago
Everyone makes mistakes now and then.
- toomuchtodo 8y ago
  Case in point: Buffet recently sold all their IBM holdings. “Buffett’s stake in IBM plunges 94% to about 2 million shares” https://www.bloomberg.com/news/articles/2018-02-14/warren-buffett-s-berkshire-cuts-almost-its-entire-stake-in-ibm https://www.bloomberg.com/news/articles/2018-02-14/warren-bu...
  - bbaumgar 8y ago
    Care to explain why you believe this was a mistake? Opinions of IBM's future performance aside, even if he were right we wouldn't know until years from now - value-based investing takes a while to pan out.
    - Someone1234 8y ago
      The video in the article explains it pretty well. In essence he over-valued IBM and then ignored their decline for years, even while the company's core business continued to dry up. He finally just exited, taking huge losses in the process. The problem with value investing is that it works great for traditional companies with normal products, but many of the fundamental analysis models fall apart with "tech" companies who's largest asset may be the brand itself. For example Uber, they own few vehicles, have few employees, and no exclusivity. How do you run a fundamentals analysis on that? A lot of traditional models would tell you that company is worth near nothing.
      - fwdpropaganda 8y ago
        > For example Uber, they own few vehicles, have few employees, and no exclusivity. How do you run a fundamentals analysis on that? A lot of traditional models would tell you that company is worth near nothing. Don't forget almost no barrier to entry. It's relatively easy to go from nothing to be a local player dispatching cars in a small neighborhood which your friends drive.
      - matte_black 8y ago
        Agreed, if Warren Buffet was just starting out today I doubt he would go for a pure value investing strategy.
dpiers 8y ago
Uber grew net revenue from 2017Q1 to 2018Q1 by 67% to $2.5 billion, which is unprecedented at that scale, and did it while significantly reducing losses. Uber is either the dominant player, or has a stake in the dominant player, in every rideshare market around the world. A lot of governance and litigation risks have been mitigated or reduced in the last year (CEO leaving, very public board infighting, Waymo lawsuit, etc). The drama last year caused a depression in valuation, but the financials remained solid and the business has good management, leading to an opportunity for Buffett to acquire a stake at a discount. Full disclosure: I work at Uber, but the numbers I quoted are public and the opinions are my own.
- mlthoughts2018 8y ago
  Do you know if this revenue figure accounts for the “top line revenue problem” (inclusion of government charges, refunds and fare promotions in top line revenue) mentioned for the 2017Q4 numbers at the 13th Naked Capitalism article [0] on Uber? Incidentally that article also casts doubt on whether recent slowing of cost growth is material to profitability. It doesn’t look to be fully updated through 2018Q1 though. [0]: < https://www.nakedcapitalism.com/2018/02/can-uber-ever-deliver-part-thirteen-even-4q-cost-cuts-uber-lost-4-5-billion-2017.html https://www.nakedcapitalism.com/2018/02/can-uber-ever-delive... >
  - dpiers 8y ago
    I can't comment on Uber's financials or accounting practices, but I can add some context on the author linked: Hubert Horan has published numerous articles with very negative outlooks on Uber over the last few years. A good example is one of his original articles from 2016 [0], which calls Uber out for having -143% profit margins in 2015. In 2015Q1, Uber's revenue was $287MM and loss was 385MM. Horan claimed there was "no evidence that Uber’s rapid growth is driving the rapid margin improvements achieved by other prominent tech startups as they “grew into profitability.”" However, 2018Q1's revenue was 8.7x and losses were only 1.2x the 2015Q1 numbers. Horan was clearly wrong, and underestimated the potential of the business. I believe he still doesn't 'get it'. If you don't believe in the potential for any growth business, the numbers can look bad on paper, but time will decide who will be vindicated and who will be disproven. [0]: https://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html https://www.nakedcapitalism.com/2016/11/can-uber-ever-delive...
morley 8y ago
According to the article, BH was seeking terms that had a big upside and protection against downside: > Under the proposed agreement, Berkshire Hathaway would have provided a convertible loan to Uber that would have protected Buffett’s investment should Uber hit financial straits, while providing significant upside if Uber continued to grow in value, said the people, who spoke under condition of anonymity because the discussions were private.
- clairity 8y ago
  that's the standard way buffett ferrets out companies in distress that he can invest in with lower risk than anyone else can get (see gm bailout). if i had to guess, buffet realizes that self-driving cars are many more years away than uber has runway, and regulators are shifting to classify drivers as employees, increasing labor costs. profitability gets pushed out, creating a cash-flow problem for uber, which buffett can take advantage of.
  - gtt 8y ago
    But. in such scenario, how can Buffet profit from under-performing Uber?
    - flyinglizard 8y ago
      He’s playing a very long game.
      - gowld 8y ago
        Not really, he's making a convertible loan so that he gets paid in the short term, skimming VC bubble money.
    - deleted 8y ago
      [deleted]
    - MrFantastic 8y ago
      It's a loan so he'd probably be in the 1st tier to get paid back if Uber went bankrupt. The equity would just be a bonus. Uber is currently positioned to win when they can get self-driving cars. Drivers are Uber's biggest expense.
TAForObvReasons 8y ago
Buffett's general MO is to find distressed or other undervalued companies and offer a large chunk of money, negotiating very favorable terms. Take their deal with Bank of America, wherein they received preferred stock which paid 6% annual dividend (so they end up higher up the capital structure than the common) as well as a dilutive warrant to purchase 700M shares of common stock at a strike price of about $7 at any time until 2021 (currently at 29.49) The article answers why the deal went sour: > Coming so soon after that cash infusion, Buffett’s attempt to take a stake in Uber while it was on the rocks may have been too late to squeeze favorable terms from the company. Buffett probably couldn't get the type of deal he wanted, mostly because they were able to secure cash independently.
- duxup 8y ago
  >Take their deal with Bank of America, wherein they received preferred stock which paid 6% annual dividend (so they end up higher up the capital structure than the common) as well as a dilutive warrant to purchase 700M shares of common stock at a strike price of about $7 at any time until 2021 (currently at 29.49) Damn 6% and more stock at a discount.... DAMN.
- taneq 8y ago
  > Buffett's general MO is to find distressed or other undervalued companies and offer a large chunk of money, negotiating very favorable terms. Are there other viable strategies for a large investor? I can't imagine it's a very good plan to pay market value for shares in companies that are already currently very successful. By definition you're buying "at the top".
  - probe 8y ago
    I think Buffett et all are betting Uber is not “at the top” and still has significant room to grow. If new investors are buying at a 62B (recent tender offer), they’re expecting some level of increase over the next 18 months and when Uber goes public.
  - pg314 8y ago
    Buffett bought 75 million Apple shares last quarter, paying market price for a very successful company. His investment philosophy is based on making the distinction between the market price of something and its intrinsic value, and looking for discrepancies between the two [1]. [1] https://www8.gsb.columbia.edu/articles/columbia-business/superinvestors https://www8.gsb.columbia.edu/articles/columbia-business/sup...
CtrlAltT5wpm 8y ago
There are multiple positive and negative reports on Uber's financials in several publications, but the one(s) I've found most convincing are those put forth by Hubert Horan. He's written a 14+ part series [1] on both the financials and the general reporting surrounding Uber, along with an academic paper [2]. He makes compelling points, and is pretty damn thorough. It's impossible to know for sure, but it may have swayed his decision. [1] - https://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html https://www.nakedcapitalism.com/2016/11/can-uber-ever-delive... (several more on the site) [2] - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2933177 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2933177
- valuearb 8y ago
  Hubert has been wrong since the beginning, he’s never had detailed enough financials to support his wild conclusions. Buffets offerto invest is just more proof of how wrong the naked capitalism series has been.
  - lukewrites 8y ago
    Can you link to any rebuttals of Horan's argument? I found his articles to be pretty convincing, but am open to reading the other side. I'm not a finance person, but it seems like how Buffett wanted to hedge his investment would mean that he isn't so rosy on Uber that he's willing to go in without guarantees.
    - valuearb 8y ago
      The available financials (read them) don’t allow backing out Uber’s cost if investing in side businesses, or international customer acquisition costs, or per market profitability. Yet he made bold claims in all those areas.
- lukewrites 8y ago
  I thought those were interesting articles (that coincide with my own heavy skepticism towards uber), but see you got heavily downvoted. Are you aware of/have links to criticisms of Horan?
kyleblarson 8y ago
His play on Goldman during the financial crisis is pretty similar: https://qz.com/67052/heres-how-warren-buffett-made-3-1-billion-on-his-crisis-era-bet-on-goldman-sachs/ https://qz.com/67052/heres-how-warren-buffett-made-3-1-billi...
gok 8y ago
Reportedly because he really likes Dara Khosrowshahi.
rajacombinator 8y ago
With no specific knowledge and without having read the linked article, I can guess based on Buffett’s MO: he smelled blood in the water and potential to get a really sweet deal.
TangoTrotFox 8y ago
If Uber can avoid going bankrupt until self driving vehicles become available, they're likely to become one of the most profitable and expansive businesses - perhaps that ever existed. Of course the two conditionals there are the game. They need to not run out of money, and self driving vehicles need to come into play. The article is sparse on details, but it looks like he was trying to angle his loan to get the both of best worlds. If they end up being unable to keep afloat his investment would have been "protected", whatever that means. Yet if they did manage to reach their goal, then he likely would also have had a major share. Win-win from his perspective. And lose-lose from Uber's, unless they were unable to find any other source of funding. And since they were, the deal fell through. It looks a lot like buying billions of dollars of tickets for a trillion dollar lottery, with a clause that you can get your money back if none of the tickets end up being a winner.
bunkydoo 8y ago
Margaritaville
thisisit 8y ago
It is easy to frame this deal as the vindication of Uber's business model. But it is not. Especially without knowing who approached whom for the money. It was reported that Uber was looking for loans during the same time: https://www.bloomberg.com/news/articles/2018-03-09/uber-calls-lenders-for-1-25-billion-in-wall-street-shortcut https://www.bloomberg.com/news/articles/2018-03-09/uber-call... And if Uber could get it from a known investor it was a big win for them. Buffett's name has it's weight, as posited by your question. Now around the same time Berkshire had $116 billion in cash and Buffett wanted huge deals: https://in.reuters.com/article/berkshire-buffett/with-116-billion-cash-buffett-says-berkshire-needs-huge-deals-idINKCN1GA1AQ https://in.reuters.com/article/berkshire-buffett/with-116-bi... The problem was finding the sensible purchase price. Buffett is an astute businessman who always looks to buy a dollar for the less than that. And in this case the price was: Under the proposed agreement, Berkshire Hathaway would have provided a convertible loan to Uber that would have protected Buffett’s investment should Uber hit financial straits, while providing significant upside if Uber continued to grow in value, said the people, who spoke under condition of anonymity because the discussions were private. Without knowing the inside of the deals it is difficult to comment but convertible loan normally turns to equity at next funding round. So, it dint matter if Uber's next round was a down round, Berkshire would have taken some equity in the company. Additionally, if things turned ugly or at the loan's maturity Berkshire's loan would have priority to claim the company's asset.
patio11 8y ago
You are one of the fairly few companies in the world who a) can use $3 billion and b) do not have ready access to the capital markets. I happen to be one of the fairly few people in the world with $3 billion and virtually unlimited flexibility to deploy it how I see fit. Yours is clearly a valuable business with strong cash flows and a lot of defensibility; that's worth something. Want my money? It's not going to be cheap, but it's available in quantity.
MrFantastic 8y ago
Uber has a great MOAT and they were having a financial crisis a few months ago. This is Buffett's wheelhouse. He wasn't just trying to buy equity, it was convertible debt which is has a stronger guarantee.

fwdpropaganda 8y ago

How is it possible that Uber has $6.5bn in cash? Weren't they losing almost $4bn a year?

TAForObvReasons 8y ago
https://www.crunchbase.com/organization/uber https://www.crunchbase.com/organization/uber > Total Funding Amount: $21.7B The real question is how companies thought it was a great idea to invest in them to the tune of $21.7B.
- huangbong 8y ago
  Worldwide consumer transportation monopoly
  - jellicle 8y ago
    With no barrier to entry and selling $10 rides for $5.
  - fwdpropaganda 8y ago
    There's no barrier to entry. Some people claim that there is a barrier to entry which is that "Uber has all the drivers". However every big city I go you see local players. Not only Lyft and Yandex, but regular cabs, or regular cabs dispatched by an app (as opposed to telephone) etc. No barrier to entry.
    - nstart 8y ago
      Agreed on this one. I'll also add, low barrier to clone but high barrier to localise. Both are not good for Uber. Sri Lanka launched it's own (privately owned) ride hailing/sharing app ahead of Uber entering our market. A lot of drivers work with both companies, but Uber is being squeezed out bit by bit. There's a lot of money in the local player to be sure, but even then, it's crazy to think that the giant international player couldn't take on our local market all that well. This is despite the local player doing all the hard work of training the market to understand how this concept works. Both drivers and riders needed significant investment. Uber came into a primed market and failed to capture it despite burning money on ridiculous bonuses for drivers at the start. Recent sales in Asia prove this inability to capture localised markets is not a one off.

known 8y ago

Buffet investment tricks are subtle https://en.wikiquote.org/wiki/Warren_Buffett https://en.wikiquote.org/wiki/Warren_Buffett

davnicwil 8y ago

Here's a question: is there a kind of equilibrium that private companies like Uber can risk breaking in terms of ultimate public valuation by staying private for too long and taking too much investment pre-IPO? If would-be shareholders have seen Buffet type investors going in (or attempting to go in) with absolutely colossal cash injections pre-IPO, might it appear like too much of the explosive growth potential has already been squeezed out before the IPO? And therefore there is less incentive to buy the stock speculatively, making the stock price lower at IPO. Isn't this a bad thing for investors looking to get in late stage? Put another way, could Buffet's investment have actually risked its own likelihood of eventually paying off, due to its size?

alehul 8y ago
It could be the case, but quite unlikely. As Buffett is a value investor, there's a very simple set of rules he follows that I recall learning from a similar-minded portfolio manager: 1) set a price the company should be valued at 2) pay less than that price 3) don't be wrong So while Buffett's investment would be colossal and substantially raise the price of the company, all that investment says is that he thinks it is currently undervalued, and he likely isn't trying to throw enough money in Uber's direction to fix the entire pricing error, from a finance standpoint. There would actually likely be more damage caused if value investors publicly turned down investing in a pre-IPO company.