10 ms·

Uber’s underwater investors

70 points by spking 7y ago

bigDICK 7y ago
That's capitalism, right? But I suppose the advantage is that the consumers benefit.
smachiz 7y ago
I mean... paper losses. It's going to take more than a few days of trading to figure out whether anyone lost money here. I'm sure none of those institutional investors were looking at the IPO as their liquidity event.
- toomuchtodo 7y ago
  What's the lockup period for employees? Six months? Is it likely the stock of a company that isn't profitable (except in a few markets) and is rapidly burning through cash reserves is worth more in six months than it is today? Their marketed value isn't on being a profitable cab service in a few major markets, they argue they're taking over the world of mobility (which is obvious they aren't and can't). Disclaimer: Armchair investor, intend to buy puts when they're available on the hunch there are no further greater fools to buy UBER
  - netcan 7y ago
    Generally speaking, the stock price today is the best indicator of the stock price tomorrow. Investors know that uber is not profitable and it's expected to be that way in 6 months too. The stock could do good or bad over those 6 months. Shares/options are risky.
    - deleted 7y ago
      [deleted]
    - toomuchtodo 7y ago
      Shares are risky. Options (in general) are not, as only the premiums you pay are at risk (versus unlimited risk with shorting shares).
      - netcan 7y ago
        That's like saying lead balls are lighter than rubber ones because they're smaller. The value at risk is the size of the investment.
      - plouffy 7y ago
        Not unlimited. Your losses shorting a stock are capped at the price you borrowed it for (though technically it could be unlimited if you have to continue paying borrowing costs if you can't buy a share and close out your short [1]). [1] https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to-zero-isn-t-great-for-short-sellers https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to...
        toomuchtodo 7y ago
        There is no limit to how high the price of an equity to go, which is where your unlimited liability comes from.
        SEJeff 7y ago
        I do wonder why you're being downvoted. Regarding a naked short, you're entirely correct in this ^
        peterbraden 7y ago
        Wrong, you owe the stock, not the purchase price.
  - Bartweiss 7y ago
    Theoretically, the answer to that (and most things) is "the market should already have priced that in". Since we all know Uber isn't profitable and is burning cash, that shouldn't lower the stock price in the future. Given that, the value of Uber is dependent on the belief that they can change that situation. If their burn rate is better in six months (even while staying unprofitable), the stock presumably rises. If it's worse or even the same, the stock presumably drops as people lose hope. More practically, there were probably a bunch of people playing 'greater fool', and a modest contraction after the hype looks standard for big tech IPOs at the moment.
- onetimemanytime 7y ago
  Paper loses...if the stock increases. Uber already was valued at $80 BILLION, it takes a lot of money and feet in the ground to increase revenue and share, it's different from Google and FB.
  - FactolSarin 7y ago
    As of right now, the stock price has dropped even further to $37. This is a brutal day for Uber stock holders.
  - pmart123 7y ago
    I think that is part of the big disconnect between private and public markets. The public market has been valuing simplicity in business models lately with old conglomerates like GE, Honeywell, Phillips, and UTX selling or spinning off units. The private market has been valuing potential and multi industry domination to some extent. Some companies like Apple, Amazon, and Microsoft have been able to have multiple avenues, but this has come after multiple successes, and what I would classify as cleaner underlying objectives. At this moment in time, Uber and Lyft would be better served proving the underlying unit economics work to receive a better public market price. I think if both could show meaningful progress in this regard, it would help stabilize their stock prices.
  - burnte 7y ago
    > Uber already was valued at $80 BILLION yes, but remember, that's a valuation based on how much of the company was sold off and for how much. $80bn hasn't been poured into Uber, just a fraction of that. Still way too much, but nowhere near $80bn.
- DogOnTheWeb 7y ago
  FTA: "The opportunity cost is even greater: Investors in the S&P 500 have seen their money grow by 50% over the same period." At this point, any retail investor can buy into Uber and experience better returns (or fewer losses) than post-2016 investors and staff.
sexisfun 7y ago
At least the consumers benefitted by having their rides subsidized.
- sct202 7y ago
  I'm going to miss those $10 off coupons.
  - dymk 7y ago
    Riding for 50% off Uber and 40% off Lyft, capped at 10 rides week, really was nice. It almost approached public transit prices in some areas of Seattle.
- shereadsthenews 7y ago
  Consumers did not benefit in the long term if Uber nuked their local taxi industry and wrecked the efficiency of their local bus service before suddenly ceasing operations.
  - AlexandrB 7y ago
    Correct. Uber is effectively VCs dictating how they’d like the transportation market to work through dumping of services at below cost.
    - sokoloff 7y ago
      Uber is by no means dumping services below the cost to provide them. Boston's UberX is $0.36/minute + $0.88/mile (plus fees and flag-drop costs). That's well in excess of the marginal cost of providing the transportation. (I'm an UBER bear and think their shares are comically over-valued. I also think that they're genuinely and sustainably profitable in their core business operation.)
  - duxup 7y ago
    I saw some local initiatives floated where public transportation should "partner" with Uber... I was a bit surprised how willing folks were to support relying so much on a company that doesn't make money and their prospects are questionable.
swarnie_ 7y ago
I'd like to thank all the VCs who have been subsiding my travel needs for the last 4 years. I would also like to extend a future thank you to the retail investors who will be picking up the mantle going forwards - Much obliged!
rixrax 7y ago
Somewhat related, how is the strike price for the employee option holders determined?
- cycrutchfield 7y ago
  Most employees have RSUs.
- greglindahl 7y ago
  Presumably Uber followed US securities law, which are pretty strict in regards to giving employees options. Or RSUs.
asdf21 7y ago
As I said in the other thread a few days ago, Uber should obviously be shorted, both in the short and the long-term. Their investors are simply trying to hedge their losses by bringing this stock public. Uber's entire valuation hinges on the idea that they will be in the big three of autonomous driving, and I simply don't think they A) Can sustain long enough to achieve this, B) have a large enough Moat to prevent outside competition from jumping in (which already happened to their ride-sharing all over Asia) and C) They bet on the wrong horse with LIDAR, vision (camera arrays) will be the future of Autonomous driving.
- warp_factor 7y ago
  Why is Lidar the wrong horse? Because Elon Musk made a slideshow and you drank the Koolaid? I don't like Uber but as far as autonomous driving is involved, Uber and Waymo use Lidar AND camera arrays versus Tesla only using camera arrays. I don't see at all how that is a deal breaker.
  - alehul 7y ago
    ^ this. Just because humans can operate a car with vision-only capabilities doesn't mean that we shouldn't use LIDAR. Every redundancy will be highly valued when human lives are at stake, and we've seen many times with Tesla how cameras alone can be fooled.
    - somethoughts 7y ago
      I think Elon is correct with an important caveat. If you are pursuing the Tesla self driving car business model which is selling a mid range luxury self driving car directly to the end consumer (and potentially operated for 4-6 hours a day as an autonomous taxi) then the cost of sensors is paramount. If you are pursuing other business models such as Uber and Lyft and Waymo, where the taxi will be purchased as a fleet, fleet managed by the operator and operated 24x7 for 5 years straight, then the cost of camera sensors + LIDAR suite will be full amortized over the 5 year life of the car and therefore be somewhat of a rounding error in the total investment return.
SilasX 7y ago
Sorry for the nitpick, but I've only heard "underwater" to refer to when you own an asset worth less than you owe on it. I've never heard it used to refer to all losses in value from investment. So it doesn't seem to be the correct usage here. Am I wrong?
- retube 7y ago
  generally in finance "underwater" simply means you've net lost on your investment (it's worth less than you paid for it, or other costs such as funding, legal etc more than offset any returns)
  - SilasX 7y ago
    Interesting. But I checked Investopedia and it only lists the case I gave, plus out-of-the-money options: https://www.investopedia.com/terms/u/underwater.asp https://www.investopedia.com/terms/u/underwater.asp
    - Bartweiss 7y ago
      I've definitely heard the broader use, but I suspect it partly stems from the fuzziness of "owes". If my mortgage exceeds the value of my house, I'm definitely underwater. But if my pension fund owns a ton of CDOs on bad mortgages and can't make payments, it's sorta-kinda underwater too. Broaden things even more, and any institutional investor promising returns can be 'underwater' on a bad investment.
      - SilasX 7y ago
        Hm, I could maybe understand if a hedge fund (or other investment firm) were operating on a "high watermark" standard (i.e. they have to get the fund's holdings past their previous all-time-high to get paid at all), then I could accept them being "underwater" in that sense.
    - taude 7y ago
      People definitely refer to their options as being underwater. pretty common vernacular, I think.
rb808 7y ago
This article was written before today's worse selloff - Uber is now less half the expected value earlier in the year. I wonder if this is the end of the current tech bubble. All those unlisted companies really aren't worth what everyone assumes they are.
- deleted 7y ago
  [deleted]
- pradn 7y ago
  A few hyped companies with bad business models are not necessarily representative of all tech IPOs. But the problem is that these few bad apples can poison the perception of the entire sector for retail and institutional investors. Nothing wrong with a $1 billion B2B SAAS company going public.
  - angstrom 7y ago
    Seems to be normal form. I don't have enough fingers to count the number of times companies go public, primary investors exit, stock slumps. Employees who have been with the company several years get stuck waiting 6 months to sell any shares at which point the stock is well under water preventing an exodus of talent. It's completely by design. It would be more concerning if these stocks were spiking after IPO because it means the underwriters messed up and the market is irrational.
    - kasey_junk 7y ago
      > Employees who have been with the company several years get stuck waiting 6 months to sell any shares at which point the stock is well under water preventing an exodus of talent. This is largely only true of employees paid in options right? I thought Uber had been using RSU for a long time, which would prevent 'under water' conditions.
      - angstrom 7y ago
        They are, but there are still some startups that use options. At least the liquidation is easier with the RSUs, but it doesn't prevent the fall off post IPO as people wait (rightfully so) to see quarterly results employee cashouts before taking a stake in whatever the narrative is. Switching to RSUs was a good decision, particularly after so many Google employees were borked with underwater options around 2008 that took until about 2009 to correct.
HillaryBriss 7y ago
> Uber is the ultimate minotaur — a company where billions of dollars of private-market funding were supposed to create a self-fulfilling prophecy of dominance and market power. It hasn't worked out like that. Ok, ok, so the strategy doesn't work for "the ultimate minotaur" because it's in a commodity business: transportation. It's sorta like airlines, which, taken as a whole industry, also lack dependable high profits.
User23 7y ago
It’s the Greater Fool theory taken to its logical conclusion.
- warp_factor 7y ago
  the whole deck of cards is crumbling and the ones losing money right now are the little investors that bought Uber on IPO day because of the hype.
  - kgwgk 7y ago
    From TFA: "IPO investors have lost $655 million, while investors from 2016 and 2018 have between them lost $2.27 billion."
  - deleted 7y ago
    [deleted]
systemBuilder 7y ago
If 99% of the company's growth has been received pre-ipo, then the word IPO = It's Peaked Forever. Decacorn is short for "greater fool investment".
- warp_factor 7y ago
  I wish but unfortunately I think Uber became "too big to fail". When there is that much VC and corporate money behind an entity you can be sure that the rules of the game will be bent so that the big players don't lose to much of their chips.
FactolSarin 7y ago
I wonder if Uber is going to turn out to be a MoviePass
- Bartweiss 7y ago
  My favorite startup metaphor (originally applied to Groupon) is that the basic "get users, then improve margins" model would justify selling dollar bills for $0.50. After all, there's tons of demand, and it's clearly a real business opportunity because the users all stick around as you move towards profitability! Then you hit that final price hike to $1.00, and discover just how nonlinear demand can be...
- dreamcompiler 7y ago
  I'm sure they'll eventually make a profit. The answer is simple: Volume. https://www.nbc.com/saturday-night-live/video/first-citiwide-bank-change-ii/n9703 https://www.nbc.com/saturday-night-live/video/first-citiwide...
gpapilion 7y ago
I'm a bit surprised to see it stated that large investors ended up underwater, simply because they usually protect themselves first. Maybe the demand in Uber was so high they could skimp on their normal protections. A year or two from now, I'd love to see what the actual paper losses were at this moment.
- sjg007 7y ago
  Yeah I thought they had liquidation preferences. Would they not have some deal where Uber has to make them whole by issuing them more stock up to the valuation price? Maybe that all goes away at the IPO, but surely to get sign off to have the IPO they must have gotten some guarantee.
  - kijiki 7y ago
    Liquidation preferences go away at an IPO because the preferred shares convert to common.
    - sjg007 7y ago
      Right, but if the value was $42 a share at IPO and that is less than what the late stage investors expected, then why would they sign off on the IPO without extra shares being issued?
      - sk5t 7y ago
        The late investors aren't forced to liquidate and any liquidation preference is extinguished at IPO... the terms of the IPO having been properly authorized, the formerly-preferred holders simply have no special say in the matter anymore.
  - pge 7y ago
    Knowing nothing about the specific terms of any Uber investment, I'll just say that in every deal I have been a part of, the liquidation preferences and associated protections went away at IPO (when all shares convert to common). It will be interesting to see if the Uber IPO (if it doesn't bounce back) makes the late-stage pre-IPO investors less supportive of going public in order not to have to give up those protections.
arbuge 7y ago
> To make billions of dollars out of Uber, like Benchmark Capital did, the secret is to invest millions of dollars in the Series A and then allow other investors to invest the extra billions needed to scale the business and fund ongoing losses. They missed a step there. The first thing is to get your fund to have Benchmark's reputation to have a chance to look at and invest in a deal like Uber early on. For those not familiar with Benchmark, they made their name on Ebay. They go way back.
- imjk 7y ago
  It's funny you're saying this about Benchmark. Didn't they have a bitter lawsuit with some founders they invested in? https://venturebeat.com/2005/01/25/epinions-founders-sue-benchmark-august-et-al/ https://venturebeat.com/2005/01/25/epinions-founders-sue-ben...
dhfromkorea 7y ago
A question: if you can make one assumption about Uber (or fix one thing about it) such that Uber will be sustainably profitable in the future. What will it be? Why do you think the assumption implies sustainable profitability in high probability?
- fullshark 7y ago
  I feel like you are fishing for "autonomous driving" but I think the real answer is: Lyft going out of business.
  - dhfromkorea 7y ago
    I was just curious, not expecting anything particular---I wondered if Uber's business and its problem space are fundamentally bad as some of the comments here suggest. Re: your opinion, I think it's a good news for Uber. If it just takes Lyft going out of business for Uber to surface above water, I would bet there's a realistic chance.
  - marcosdumay 7y ago
    How much more do you think Uber can charge before a different competitor appears? My bet is on 0. The market seems more restricted on number of players (drivers can't juggle many applications at the same time) than on price, and if Lyft goes away, another competitor will immediately appear.
olivermarks 7y ago
'Uber loses more money than any other company to ever go public.' Says it all.
nknealk 7y ago
Its weird they'd use Pitchbook as their source for funding when Uber disclosed information in their S1 under the table titled "Redeemable Convertible Preferred Stock". See page F-51 here: https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm https://www.sec.gov/Archives/edgar/data/1543151/000119312519... From that table, they didn't raise 15B at 48.77 but closer to 8B. The article is off by 50%. Still a stunning amount of money under water. What's also not highlighted in the article is that holders of that series G preferred stock are entitled to a $3.90 annual dividend per share (again, see the table in the S1). If you assume a 10% discount rate for 5 years of dividends, that dividend is worth like $14 per share today. So maybe they aren't as under water as the article claims. [EDIT:] if you read further along, it looks like Series G got converted to common stock in 2018, so they no longer get paid this dividend. That said, people who bought common stock do not get dividends as of today.

70 points by spking 7y ago

That's capitalism, right? But I suppose the advantage is that the consumers benefit.

I mean... paper losses. It's going to take more than a few days of trading to figure out whether anyone lost money here. I'm sure none of those institutional investors were looking at the IPO as their liquidity event.

toomuchtodo 7y ago
What's the lockup period for employees? Six months? Is it likely the stock of a company that isn't profitable (except in a few markets) and is rapidly burning through cash reserves is worth more in six months than it is today? Their marketed value isn't on being a profitable cab service in a few major markets, they argue they're taking over the world of mobility (which is obvious they aren't and can't). Disclaimer: Armchair investor, intend to buy puts when they're available on the hunch there are no further greater fools to buy UBER
- netcan 7y ago
  Generally speaking, the stock price today is the best indicator of the stock price tomorrow. Investors know that uber is not profitable and it's expected to be that way in 6 months too. The stock could do good or bad over those 6 months. Shares/options are risky.
  - deleted 7y ago
    [deleted]
  - toomuchtodo 7y ago
    Shares are risky. Options (in general) are not, as only the premiums you pay are at risk (versus unlimited risk with shorting shares).
    - netcan 7y ago
      That's like saying lead balls are lighter than rubber ones because they're smaller. The value at risk is the size of the investment.
    - plouffy 7y ago
      Not unlimited. Your losses shorting a stock are capped at the price you borrowed it for (though technically it could be unlimited if you have to continue paying borrowing costs if you can't buy a share and close out your short [1]). [1] https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to-zero-isn-t-great-for-short-sellers https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to...
      - toomuchtodo 7y ago
        There is no limit to how high the price of an equity to go, which is where your unlimited liability comes from.
      - SEJeff 7y ago
        I do wonder why you're being downvoted. Regarding a naked short, you're entirely correct in this ^
      - peterbraden 7y ago
        Wrong, you owe the stock, not the purchase price.
- Bartweiss 7y ago
  Theoretically, the answer to that (and most things) is "the market should already have priced that in". Since we all know Uber isn't profitable and is burning cash, that shouldn't lower the stock price in the future. Given that, the value of Uber is dependent on the belief that they can change that situation. If their burn rate is better in six months (even while staying unprofitable), the stock presumably rises. If it's worse or even the same, the stock presumably drops as people lose hope. More practically, there were probably a bunch of people playing 'greater fool', and a modest contraction after the hype looks standard for big tech IPOs at the moment.
onetimemanytime 7y ago
Paper loses...if the stock increases. Uber already was valued at $80 BILLION, it takes a lot of money and feet in the ground to increase revenue and share, it's different from Google and FB.
- FactolSarin 7y ago
  As of right now, the stock price has dropped even further to $37. This is a brutal day for Uber stock holders.
- pmart123 7y ago
  I think that is part of the big disconnect between private and public markets. The public market has been valuing simplicity in business models lately with old conglomerates like GE, Honeywell, Phillips, and UTX selling or spinning off units. The private market has been valuing potential and multi industry domination to some extent. Some companies like Apple, Amazon, and Microsoft have been able to have multiple avenues, but this has come after multiple successes, and what I would classify as cleaner underlying objectives. At this moment in time, Uber and Lyft would be better served proving the underlying unit economics work to receive a better public market price. I think if both could show meaningful progress in this regard, it would help stabilize their stock prices.
- burnte 7y ago
  > Uber already was valued at $80 BILLION yes, but remember, that's a valuation based on how much of the company was sold off and for how much. $80bn hasn't been poured into Uber, just a fraction of that. Still way too much, but nowhere near $80bn.
DogOnTheWeb 7y ago
FTA: "The opportunity cost is even greater: Investors in the S&P 500 have seen their money grow by 50% over the same period." At this point, any retail investor can buy into Uber and experience better returns (or fewer losses) than post-2016 investors and staff.

sexisfun 7y ago

At least the consumers benefitted by having their rides subsidized.

sct202 7y ago
I'm going to miss those $10 off coupons.
- dymk 7y ago
  Riding for 50% off Uber and 40% off Lyft, capped at 10 rides week, really was nice. It almost approached public transit prices in some areas of Seattle.
shereadsthenews 7y ago
Consumers did not benefit in the long term if Uber nuked their local taxi industry and wrecked the efficiency of their local bus service before suddenly ceasing operations.
- AlexandrB 7y ago
  Correct. Uber is effectively VCs dictating how they’d like the transportation market to work through dumping of services at below cost.
  - sokoloff 7y ago
    Uber is by no means dumping services below the cost to provide them. Boston's UberX is $0.36/minute + $0.88/mile (plus fees and flag-drop costs). That's well in excess of the marginal cost of providing the transportation. (I'm an UBER bear and think their shares are comically over-valued. I also think that they're genuinely and sustainably profitable in their core business operation.)
- duxup 7y ago
  I saw some local initiatives floated where public transportation should "partner" with Uber... I was a bit surprised how willing folks were to support relying so much on a company that doesn't make money and their prospects are questionable.

swarnie_ 7y ago

I'd like to thank all the VCs who have been subsiding my travel needs for the last 4 years. I would also like to extend a future thank you to the retail investors who will be picking up the mantle going forwards - Much obliged!

rixrax 7y ago

Somewhat related, how is the strike price for the employee option holders determined?

cycrutchfield 7y ago
Most employees have RSUs.
greglindahl 7y ago
Presumably Uber followed US securities law, which are pretty strict in regards to giving employees options. Or RSUs.

asdf21 7y ago

As I said in the other thread a few days ago, Uber should obviously be shorted, both in the short and the long-term. Their investors are simply trying to hedge their losses by bringing this stock public. Uber's entire valuation hinges on the idea that they will be in the big three of autonomous driving, and I simply don't think they A) Can sustain long enough to achieve this, B) have a large enough Moat to prevent outside competition from jumping in (which already happened to their ride-sharing all over Asia) and C) They bet on the wrong horse with LIDAR, vision (camera arrays) will be the future of Autonomous driving.

warp_factor 7y ago
Why is Lidar the wrong horse? Because Elon Musk made a slideshow and you drank the Koolaid? I don't like Uber but as far as autonomous driving is involved, Uber and Waymo use Lidar AND camera arrays versus Tesla only using camera arrays. I don't see at all how that is a deal breaker.
- alehul 7y ago
  ^ this. Just because humans can operate a car with vision-only capabilities doesn't mean that we shouldn't use LIDAR. Every redundancy will be highly valued when human lives are at stake, and we've seen many times with Tesla how cameras alone can be fooled.
  - somethoughts 7y ago
    I think Elon is correct with an important caveat. If you are pursuing the Tesla self driving car business model which is selling a mid range luxury self driving car directly to the end consumer (and potentially operated for 4-6 hours a day as an autonomous taxi) then the cost of sensors is paramount. If you are pursuing other business models such as Uber and Lyft and Waymo, where the taxi will be purchased as a fleet, fleet managed by the operator and operated 24x7 for 5 years straight, then the cost of camera sensors + LIDAR suite will be full amortized over the 5 year life of the car and therefore be somewhat of a rounding error in the total investment return.

SilasX 7y ago

Sorry for the nitpick, but I've only heard "underwater" to refer to when you own an asset worth less than you owe on it. I've never heard it used to refer to all losses in value from investment. So it doesn't seem to be the correct usage here. Am I wrong?

retube 7y ago
generally in finance "underwater" simply means you've net lost on your investment (it's worth less than you paid for it, or other costs such as funding, legal etc more than offset any returns)
- SilasX 7y ago
  Interesting. But I checked Investopedia and it only lists the case I gave, plus out-of-the-money options: https://www.investopedia.com/terms/u/underwater.asp https://www.investopedia.com/terms/u/underwater.asp
  - Bartweiss 7y ago
    I've definitely heard the broader use, but I suspect it partly stems from the fuzziness of "owes". If my mortgage exceeds the value of my house, I'm definitely underwater. But if my pension fund owns a ton of CDOs on bad mortgages and can't make payments, it's sorta-kinda underwater too. Broaden things even more, and any institutional investor promising returns can be 'underwater' on a bad investment.
    - SilasX 7y ago
      Hm, I could maybe understand if a hedge fund (or other investment firm) were operating on a "high watermark" standard (i.e. they have to get the fund's holdings past their previous all-time-high to get paid at all), then I could accept them being "underwater" in that sense.
  - taude 7y ago
    People definitely refer to their options as being underwater. pretty common vernacular, I think.

rb808 7y ago

This article was written before today's worse selloff - Uber is now less half the expected value earlier in the year. I wonder if this is the end of the current tech bubble. All those unlisted companies really aren't worth what everyone assumes they are.

deleted 7y ago
[deleted]
pradn 7y ago
A few hyped companies with bad business models are not necessarily representative of all tech IPOs. But the problem is that these few bad apples can poison the perception of the entire sector for retail and institutional investors. Nothing wrong with a $1 billion B2B SAAS company going public.
- angstrom 7y ago
  Seems to be normal form. I don't have enough fingers to count the number of times companies go public, primary investors exit, stock slumps. Employees who have been with the company several years get stuck waiting 6 months to sell any shares at which point the stock is well under water preventing an exodus of talent. It's completely by design. It would be more concerning if these stocks were spiking after IPO because it means the underwriters messed up and the market is irrational.
  - kasey_junk 7y ago
    > Employees who have been with the company several years get stuck waiting 6 months to sell any shares at which point the stock is well under water preventing an exodus of talent. This is largely only true of employees paid in options right? I thought Uber had been using RSU for a long time, which would prevent 'under water' conditions.
    - angstrom 7y ago
      They are, but there are still some startups that use options. At least the liquidation is easier with the RSUs, but it doesn't prevent the fall off post IPO as people wait (rightfully so) to see quarterly results employee cashouts before taking a stake in whatever the narrative is. Switching to RSUs was a good decision, particularly after so many Google employees were borked with underwater options around 2008 that took until about 2009 to correct.

HillaryBriss 7y ago

> Uber is the ultimate minotaur — a company where billions of dollars of private-market funding were supposed to create a self-fulfilling prophecy of dominance and market power. It hasn't worked out like that. Ok, ok, so the strategy doesn't work for "the ultimate minotaur" because it's in a commodity business: transportation. It's sorta like airlines, which, taken as a whole industry, also lack dependable high profits.

User23 7y ago

It’s the Greater Fool theory taken to its logical conclusion.

warp_factor 7y ago
the whole deck of cards is crumbling and the ones losing money right now are the little investors that bought Uber on IPO day because of the hype.
- kgwgk 7y ago
  From TFA: "IPO investors have lost $655 million, while investors from 2016 and 2018 have between them lost $2.27 billion."
- deleted 7y ago
  [deleted]

systemBuilder 7y ago

If 99% of the company's growth has been received pre-ipo, then the word IPO = It's Peaked Forever. Decacorn is short for "greater fool investment".

warp_factor 7y ago
I wish but unfortunately I think Uber became "too big to fail". When there is that much VC and corporate money behind an entity you can be sure that the rules of the game will be bent so that the big players don't lose to much of their chips.

FactolSarin 7y ago

I wonder if Uber is going to turn out to be a MoviePass

Bartweiss 7y ago
My favorite startup metaphor (originally applied to Groupon) is that the basic "get users, then improve margins" model would justify selling dollar bills for $0.50. After all, there's tons of demand, and it's clearly a real business opportunity because the users all stick around as you move towards profitability! Then you hit that final price hike to $1.00, and discover just how nonlinear demand can be...
dreamcompiler 7y ago
I'm sure they'll eventually make a profit. The answer is simple: Volume. https://www.nbc.com/saturday-night-live/video/first-citiwide-bank-change-ii/n9703 https://www.nbc.com/saturday-night-live/video/first-citiwide...

gpapilion 7y ago

I'm a bit surprised to see it stated that large investors ended up underwater, simply because they usually protect themselves first. Maybe the demand in Uber was so high they could skimp on their normal protections. A year or two from now, I'd love to see what the actual paper losses were at this moment.

sjg007 7y ago
Yeah I thought they had liquidation preferences. Would they not have some deal where Uber has to make them whole by issuing them more stock up to the valuation price? Maybe that all goes away at the IPO, but surely to get sign off to have the IPO they must have gotten some guarantee.
- kijiki 7y ago
  Liquidation preferences go away at an IPO because the preferred shares convert to common.
  - sjg007 7y ago
    Right, but if the value was $42 a share at IPO and that is less than what the late stage investors expected, then why would they sign off on the IPO without extra shares being issued?
    - sk5t 7y ago
      The late investors aren't forced to liquidate and any liquidation preference is extinguished at IPO... the terms of the IPO having been properly authorized, the formerly-preferred holders simply have no special say in the matter anymore.
- pge 7y ago
  Knowing nothing about the specific terms of any Uber investment, I'll just say that in every deal I have been a part of, the liquidation preferences and associated protections went away at IPO (when all shares convert to common). It will be interesting to see if the Uber IPO (if it doesn't bounce back) makes the late-stage pre-IPO investors less supportive of going public in order not to have to give up those protections.

arbuge 7y ago

> To make billions of dollars out of Uber, like Benchmark Capital did, the secret is to invest millions of dollars in the Series A and then allow other investors to invest the extra billions needed to scale the business and fund ongoing losses. They missed a step there. The first thing is to get your fund to have Benchmark's reputation to have a chance to look at and invest in a deal like Uber early on. For those not familiar with Benchmark, they made their name on Ebay. They go way back.

imjk 7y ago
It's funny you're saying this about Benchmark. Didn't they have a bitter lawsuit with some founders they invested in? https://venturebeat.com/2005/01/25/epinions-founders-sue-benchmark-august-et-al/ https://venturebeat.com/2005/01/25/epinions-founders-sue-ben...

dhfromkorea 7y ago

A question: if you can make one assumption about Uber (or fix one thing about it) such that Uber will be sustainably profitable in the future. What will it be? Why do you think the assumption implies sustainable profitability in high probability?

fullshark 7y ago
I feel like you are fishing for "autonomous driving" but I think the real answer is: Lyft going out of business.
- dhfromkorea 7y ago
  I was just curious, not expecting anything particular---I wondered if Uber's business and its problem space are fundamentally bad as some of the comments here suggest. Re: your opinion, I think it's a good news for Uber. If it just takes Lyft going out of business for Uber to surface above water, I would bet there's a realistic chance.
- marcosdumay 7y ago
  How much more do you think Uber can charge before a different competitor appears? My bet is on 0. The market seems more restricted on number of players (drivers can't juggle many applications at the same time) than on price, and if Lyft goes away, another competitor will immediately appear.

olivermarks 7y ago

'Uber loses more money than any other company to ever go public.' Says it all.

nknealk 7y ago

Its weird they'd use Pitchbook as their source for funding when Uber disclosed information in their S1 under the table titled "Redeemable Convertible Preferred Stock". See page F-51 here: https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm https://www.sec.gov/Archives/edgar/data/1543151/000119312519... From that table, they didn't raise 15B at 48.77 but closer to 8B. The article is off by 50%. Still a stunning amount of money under water. What's also not highlighted in the article is that holders of that series G preferred stock are entitled to a $3.90 annual dividend per share (again, see the table in the S1). If you assume a 10% discount rate for 5 years of dividends, that dividend is worth like $14 per share today. So maybe they aren't as under water as the article claims. [EDIT:] if you read further along, it looks like Series G got converted to common stock in 2018, so they no longer get paid this dividend. That said, people who bought common stock do not get dividends as of today.