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Uber and Lyft IPOs look to me like they are legal ponzy schemes. Both companies lose a crazy amount of money, they have close to zero moat, customers have no l

Uber and Lyft IPOs look to me like they are legal ponzy schemes. Both companies lose a crazy amount of money, they have close to zero moat, customers have no loyalty and will go to another rideshare service if it is one dollar cheaper. The fundamentals don't make any sense, but still we read everywhere that Lyft and Uber at those prices make sense. The VCs and founders decided to get out while the market is up (and while they still can) and they will sell their shares to the "dumb" public that will buy into another overhyped tech stocks without really understanding the fundamentals. The employees cannot sell before 6 months, they are locked out. After a couple weeks the market will probably realize this stock is overvalued and it will start to go down, but at that point all the big fishes will be out already and who will hold those toxic assets? individual investors and employees that cannot yet sell.

Judgmentality 8y ago
I agree I don't understand how a company seemingly built on backwards business fundamentals can be valued so highly, but I disagree it will be only a couple of weeks before the market adjusts the price accordingly. I think it will take much longer than that, probably closer to a couple of years of a slow downward trend with lots of volatile spikes.
- Slartie 8y ago
  I would expect the same, at least for Lyft. Uber is a bit of a different beast. It's valuated much higher, and it banked a lot of that valuation (in my perception at least) on the perspective of getting self-developed fully automated driving capability to the market and thus having an edge (and an actual moat) to be used to finally reach profitability by eliminating the costly drivers. Thus I would expect its valuation to stay high for a while, but drop sharply as soon as the "fully automated driving is right around the corner" bubble pops for real.
austincheney 8y ago
Why would anybody want to invest money into a stock that has never been profitable and has no future indication of ever reaching profit? It really just sounds like speculation based on nothing. This reminds me of the bitcoin market.
- jeremyjh 8y ago
  I fully agree on Lyft and Uber and I think the public is getting duped on this IPO. Its worth pointing out though, that people said the same thing about Amazon's IPO.
  - austincheney 8y ago
    To be fair Amazon is profitable, but their stock is extremely inflated by over speculation. The idea is still the same. Dump cash into the stock and hope others do the same driving up the price of the stock in the hopes that you can drop it before the bubble pops.
    - sparkling 8y ago
      > but their stock is extremely inflated by over speculation By that indicator?
    - astura 8y ago
      Amazon wasn't profitable for over a decade after their IPO.
      - icelancer 8y ago
        Amazon isn't profitable by design. Lyft and Uber aren't profitable because of economics.
        dnautics 8y ago
        what does that statement even mean? Pick one {Lyft, Uber} and cross out the other one because it goes bankrupt. Now there's way less overhead per ride because you don't have to aggressively market, and your only costs are infra, insurance, and driver filtering, increase your fares by a bit (because less competition) and drop your take from the drivers to make them happy. Do you not then see this as a money printing machine?
gibba999 8y ago
I think the key is to establish an unassailable logistics network. Once enough drivers, passengers, and other users (delivery, etc.) use either service, it becomes a pretty big moat. If my driver is closer, and I have scale to keep them busy, you'll have no way to compete without dumping in those same millions. It's how Amazon worked.
- jeremyjh 8y ago
  How is this a moat? Most drivers and passengers already use both services and switch between them based on price. They have no loyalty and they don't need their friends and family to move with them to another service, they just move. I could see at some point there will be an Orbits like service that finds you the cheapest rate among multiple services.
  - awinder 8y ago
    Having a significant leader advantage and on a market that takes time & a lot of money to develop is one of the more classic “moats” in the infrastructure game. Anyone can lay tons of fiber cable, anyone can build railroads, how are those moats? For the same reason, including the legislation you can nudge along the way to even more establish an unmovable position
    - Dumblydorr 8y ago
      Are you being sarcastic? No one can just throw down Rail or cable, that's what doomed Google fiber and Cali HSR and many other projects. There is no moat with Lyft because any user could easily switch to another ride hailing app.
      - awinder 8y ago
        Yeah I was being sarcastic. My point is that theres a limited technical challenges on the scale of feasibility ("anyone _can_ build...). The big challenges are on the cost/return side of things. Google Fiber faced tremendous pressure for if it was responsible spending or not, which they ultimately decided it was not. So there's good skepticism here about why the valuation would be that high, but I think its a stretch to say they don't have a moat and they're doomed / you cant build a successful company that way. AT&T / Verizon seem very comparable (they don't have a technology moat, they have a first-mover advantage which has been stable for a long time).
hobofan 8y ago
> like they are legal ponzy schemes 1. Could you please not call something a ponzi scheme, just because it looks scammy? This seems to be a trend that has caught on during the crypto-bubble (where admittedly there where a lot of ponzi schemes), but not every scam is a ponzi scheme. 2. Whoever trades on the stock market knows the risks. Whether the pre-IPO VC funding cycle is a ponzi scheme is another topic...
- yaseer 8y ago
  I would argue that any investment scam in which money from new investors gives liquidity to old investors, resembles a ponzi scheme.
  - hobofan 8y ago
    Which would be true for any IPO?
    - joosters 8y ago
      Only the ones that never make anywhere near to a profit.
    - yaseer 8y ago
      I would qualify that as a situation that repeats itself. If money from new investors is repeatedly used to pay old investors, it resembles a ponzi scheme.
    - warp_factor 8y ago
      only if the IPO price is completely unrelated to the fundamentals, like it is for Lyft currently. If it is unrelated to the fundamentals, you are in full speculation territory and the only goal buying the stock is to sell it eventually to a bigger fool that will pay more for it.
- jacksproit 8y ago
  The last big downturn was a decade ago. Any traders age 18-28 have never seen a big drop and likely don't comprehend the extent of the risks IMO.
dalbasal 8y ago
Partly, it's just that everything is priced relative to the current market, which atm is cash rich and opportunity poor. Uber and Lyft are an optimistic bet. They can't generate profits right now but (Uber especially) they might find a way. Self driving cars are otw. They could be in position for that. Regulation is otw. This could give them a moat. ..also efficiency, I suppose. A lot of recent "marketplace" successes (YouTube rev-share, app stores, steam, iTunes...) are built on thick margins. Uber and Lyft take 20-25%. Uber & Lyft's main job is software and software scales. There's no inherent reason preventing them from operating within a profit producing budget, especially if growth-at-all-costs ends. It'd be hard to justify the share price though. Remember that FB went public well before the ad business turned into the money machine it became. Not saying it's a good investment. I suspect it's not, but there aren't many good investments around. etc.
- vidro3 8y ago
  I don't get the self-driving car move for Uber, et al. Instead of letting drivers use their own cars or making money on loans they will all of a sudden have to buy tens of thousands of cars, maintain them and replace them every 5ish years (unless they get yet another exemption from taxi regulation commissions).
- Balgair 8y ago
  Aside: > but there aren't many good investments around. etc. Like, can we talk about this just a sec? I feel this too, that there just isn't a lot of room left in the economy. But, it just feels like that is crazy, right? There is all this money, more than ever before. There is all this technology, and it's the best that has ever been out there. There is all this education and learning, we're better at teaching people than we've ever been. And there are all these people, nearly eight billion of us. Things, objectively, have never been better! So, how can we be running out of good investments? It just feels like I'm nutz here. One one hand, we have all this potential energy, but on the other, there is just no where for the kinetic energy to go. Humans aren't just boulders on hill sides, we don't tend to sit still, we get moving on our own. Why do I feel like I'm missing something big?
  - 8y ago
uhhhhhhh 8y ago
I'd purchase up front and ride the initial wave until the collapse if I thought it would last more than a day or two. I think we'll see facebook similar treatment, comes out to immediately drop
SkyBelow 8y ago
>individual investors and employees that cannot yet sell. Don't forget government pension programs that are some of the most mismanaged portfolios around.
robbiemitchell 8y ago
Typically the VCs and founders are locked up along with the employees aside from a small percentage of shares the biggest shareholders sell at IPO. Is that different here?
ackbar03 8y ago
I was kind of hoping the ipo would tank cause I can't help feeling this is going to end badly for the retail investors who once again end up holding the shit sack. A successful ipo just goes to show that the fat cat capitalists have once again managed to game the system

Judgmentality 8y ago

I agree I don't understand how a company seemingly built on backwards business fundamentals can be valued so highly, but I disagree it will be only a couple of weeks before the market adjusts the price accordingly. I think it will take much longer than that, probably closer to a couple of years of a slow downward trend with lots of volatile spikes.

Slartie 8y ago
I would expect the same, at least for Lyft. Uber is a bit of a different beast. It's valuated much higher, and it banked a lot of that valuation (in my perception at least) on the perspective of getting self-developed fully automated driving capability to the market and thus having an edge (and an actual moat) to be used to finally reach profitability by eliminating the costly drivers. Thus I would expect its valuation to stay high for a while, but drop sharply as soon as the "fully automated driving is right around the corner" bubble pops for real.

austincheney 8y ago

Why would anybody want to invest money into a stock that has never been profitable and has no future indication of ever reaching profit? It really just sounds like speculation based on nothing. This reminds me of the bitcoin market.

jeremyjh 8y ago
I fully agree on Lyft and Uber and I think the public is getting duped on this IPO. Its worth pointing out though, that people said the same thing about Amazon's IPO.
- austincheney 8y ago
  To be fair Amazon is profitable, but their stock is extremely inflated by over speculation. The idea is still the same. Dump cash into the stock and hope others do the same driving up the price of the stock in the hopes that you can drop it before the bubble pops.
  - sparkling 8y ago
    > but their stock is extremely inflated by over speculation By that indicator?
  - astura 8y ago
    Amazon wasn't profitable for over a decade after their IPO.
    - icelancer 8y ago
      Amazon isn't profitable by design. Lyft and Uber aren't profitable because of economics.
      - dnautics 8y ago
        what does that statement even mean? Pick one {Lyft, Uber} and cross out the other one because it goes bankrupt. Now there's way less overhead per ride because you don't have to aggressively market, and your only costs are infra, insurance, and driver filtering, increase your fares by a bit (because less competition) and drop your take from the drivers to make them happy. Do you not then see this as a money printing machine?

gibba999 8y ago

I think the key is to establish an unassailable logistics network. Once enough drivers, passengers, and other users (delivery, etc.) use either service, it becomes a pretty big moat. If my driver is closer, and I have scale to keep them busy, you'll have no way to compete without dumping in those same millions. It's how Amazon worked.

jeremyjh 8y ago
How is this a moat? Most drivers and passengers already use both services and switch between them based on price. They have no loyalty and they don't need their friends and family to move with them to another service, they just move. I could see at some point there will be an Orbits like service that finds you the cheapest rate among multiple services.
- awinder 8y ago
  Having a significant leader advantage and on a market that takes time & a lot of money to develop is one of the more classic “moats” in the infrastructure game. Anyone can lay tons of fiber cable, anyone can build railroads, how are those moats? For the same reason, including the legislation you can nudge along the way to even more establish an unmovable position
  - Dumblydorr 8y ago
    Are you being sarcastic? No one can just throw down Rail or cable, that's what doomed Google fiber and Cali HSR and many other projects. There is no moat with Lyft because any user could easily switch to another ride hailing app.
    - awinder 8y ago
      Yeah I was being sarcastic. My point is that theres a limited technical challenges on the scale of feasibility ("anyone _can_ build...). The big challenges are on the cost/return side of things. Google Fiber faced tremendous pressure for if it was responsible spending or not, which they ultimately decided it was not. So there's good skepticism here about why the valuation would be that high, but I think its a stretch to say they don't have a moat and they're doomed / you cant build a successful company that way. AT&T / Verizon seem very comparable (they don't have a technology moat, they have a first-mover advantage which has been stable for a long time).

hobofan 8y ago

> like they are legal ponzy schemes 1. Could you please not call something a ponzi scheme, just because it looks scammy? This seems to be a trend that has caught on during the crypto-bubble (where admittedly there where a lot of ponzi schemes), but not every scam is a ponzi scheme. 2. Whoever trades on the stock market knows the risks. Whether the pre-IPO VC funding cycle is a ponzi scheme is another topic...

yaseer 8y ago
I would argue that any investment scam in which money from new investors gives liquidity to old investors, resembles a ponzi scheme.
- hobofan 8y ago
  Which would be true for any IPO?
  - joosters 8y ago
    Only the ones that never make anywhere near to a profit.
  - yaseer 8y ago
    I would qualify that as a situation that repeats itself. If money from new investors is repeatedly used to pay old investors, it resembles a ponzi scheme.
  - warp_factor 8y ago
    only if the IPO price is completely unrelated to the fundamentals, like it is for Lyft currently. If it is unrelated to the fundamentals, you are in full speculation territory and the only goal buying the stock is to sell it eventually to a bigger fool that will pay more for it.
jacksproit 8y ago
The last big downturn was a decade ago. Any traders age 18-28 have never seen a big drop and likely don't comprehend the extent of the risks IMO.

dalbasal 8y ago

Partly, it's just that everything is priced relative to the current market, which atm is cash rich and opportunity poor. Uber and Lyft are an optimistic bet. They can't generate profits right now but (Uber especially) they might find a way. Self driving cars are otw. They could be in position for that. Regulation is otw. This could give them a moat. ..also efficiency, I suppose. A lot of recent "marketplace" successes (YouTube rev-share, app stores, steam, iTunes...) are built on thick margins. Uber and Lyft take 20-25%. Uber & Lyft's main job is software and software scales. There's no inherent reason preventing them from operating within a profit producing budget, especially if growth-at-all-costs ends. It'd be hard to justify the share price though. Remember that FB went public well before the ad business turned into the money machine it became. Not saying it's a good investment. I suspect it's not, but there aren't many good investments around. etc.

vidro3 8y ago
I don't get the self-driving car move for Uber, et al. Instead of letting drivers use their own cars or making money on loans they will all of a sudden have to buy tens of thousands of cars, maintain them and replace them every 5ish years (unless they get yet another exemption from taxi regulation commissions).
Balgair 8y ago
Aside: > but there aren't many good investments around. etc. Like, can we talk about this just a sec? I feel this too, that there just isn't a lot of room left in the economy. But, it just feels like that is crazy, right? There is all this money, more than ever before. There is all this technology, and it's the best that has ever been out there. There is all this education and learning, we're better at teaching people than we've ever been. And there are all these people, nearly eight billion of us. Things, objectively, have never been better! So, how can we be running out of good investments? It just feels like I'm nutz here. One one hand, we have all this potential energy, but on the other, there is just no where for the kinetic energy to go. Humans aren't just boulders on hill sides, we don't tend to sit still, we get moving on our own. Why do I feel like I'm missing something big?
- 8y ago

uhhhhhhh 8y ago

I'd purchase up front and ride the initial wave until the collapse if I thought it would last more than a day or two. I think we'll see facebook similar treatment, comes out to immediately drop

SkyBelow 8y ago

>individual investors and employees that cannot yet sell. Don't forget government pension programs that are some of the most mismanaged portfolios around.

robbiemitchell 8y ago

Typically the VCs and founders are locked up along with the employees aside from a small percentage of shares the biggest shareholders sell at IPO. Is that different here?

ackbar03 8y ago

I was kind of hoping the ipo would tank cause I can't help feeling this is going to end badly for the retail investors who once again end up holding the shit sack. A successful ipo just goes to show that the fat cat capitalists have once again managed to game the system