May 10, 2019
Popular rider share companies, Lyft and Uber, recently went public to great fanfare over the past month. Lyft, after a successful opening, saw their share price drop so much that it does not reflect investor confidence in its business model. Uber, which is a bit more popular and has branched out into food delivery and luxury driver service, has seen their share price drop as well. Are these companies worth investor belief in their futures?
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Lyft and Uber have been two of the most anticipated Initial Public Offerings (IPO) for this calendar year. Lyft saw 70 million shares change hands on its first day of trading as a public company in March 2019, and it currently sits at a valuation of roughly $23 billion, with shares close to $72 per share. Its value has dropped close to 30% after its first day. I am not surprised by this since it reported a loss of $800 million in 2018. It is the second largest ride-sharing company (behind tech titan Uber), and investors seem to think it will eventually mature and become a successful company. Some analysts provide Amazon as an example of a company that didn't turn a profit for almost a decade before becoming the juggernaut it is today, with close to processing 50% of all online purchases. That is mind-boggling.
Investors see value in Lyft and Uber and believe that they will turn into profitable companies. Lyft has been known to offer cheaper rides than its rival and has benefited from the stumbles of its much larger competitor, as for instance when founder Travis Kelanick was alleged to have fostered a hostile workplace environment. In addition, Uber has a similar reputation for its treatment of its drivers, along with rider safety issues. Lyft has a smaller market share of roughly 40% and operates mainly in the United States and Canada, while Uber operates around the world.
Investors see value in Lyft and Uber and believe that they will turn into profitable companies. Lyft has been known to offer cheaper rides than its rival and has benefited from the stumbles of its much larger competitor, as for instance when founder Travis Kelanick was alleged to have fostered a hostile workplace environment. In addition, Uber has a similar reputation for its treatment of its drivers, along with rider safety issues. Lyft has a smaller market share of roughly 40% and operates mainly in the United States and Canada, while Uber operates around the world.
Uber filed for its public offering in the middle of April and went public today, May 10, 2019. As of this writing, the stock price traded below ($41.50) the IPO price of $45 and closed 7% below its market value, and investors and analysts currently value it at $76 billion. The company took in close to $11 billion in revenue for 2018, and has a 60% market share, is better known and used more than its competitor in many countries. Investors could be more bullish on Uber because it is a larger and more visible company. Others may invest in the hopes that it stabilizes after going public with its stock offering. However, signs show that perhaps the smart money is still a hedge on your bets because revenue growth has slowed, along with fierce competition from ride-sharing and taxi company rivals in other countries. Also, it is less likely that the company will be profitable in the short-term (and long-term is cloudy as well). There are proposals to turn Uber's drivers into actual employees of the ride-share company, which is vehemently opposed by the company's leadership, which could make it even harder to show a profit. As of their market introduction, Uber did not offer any sort of stock options for their drivers, who are contract workers, and thus ineligible. On the first day of trading, Uber drivers staged a protest to bring attention to these and other work conditions.
What is the viability of these companies? Initial public offerings do bring out cheerleading from analysts on CNBC and Bloomberg, but I expect immense problems ahead. Waymo (a division of Google's parent company, Alphabet) are working on driverless cars. Will these challenges from their rivals eat into the business model? Financial reports have stated that Waymo algorithms and software is way ahead of Uber and Lyft, and could pose enough of a threat for the viability of those ride-share companies. Experts in the financial services industry and Wall Street feel that the business goals of these large companies amount to projections and "hopes" that their models will show increased revenue and will prove to be a good investment.
In the so-called "gig" economy, where there are opportunities for citizens to bring in additional revenue to their primary jobs, it does seem an option, but may not be popular for society at large. Mileage and vehicle maintenance will affect driver overhead, and tips may not be consistently large enough to make this a permanent job. There are numerous articles providing statistics that independent contractor jobs will be more prevalent in the future, despite the fact that companies these folks work for may never turn a profit. I believe many of the jobs created by the American economy that Presidents Obama and Trump herald tend to be freelance, temporary and part-time. Ride-share jobs do not allow people to earn an actual living wage but provide an opportunity to make a little extra money in addition to their primary jobs. Will this be the future that America's powerful economy will turn, and will it be good for the country? I doubt with this type of income, Americans will be able to buy homes, cars and other items that increase their quality of life.
If autonomous cars become a regular thing on city streets, it will lead to slower and more burdensome traffic in major transportation areas. Interaction between driverless cars and human drivers will not make traffic better, but worse. At the present time, the goal is to reduce cars and their resulting congestion on the road, which presumably will reduce smog and pollution. The Canadian town of Innisfil (a suburb of Toronto) attempted to "Uberize" its public transportation system and took notes on its benefit to see how it played out. It seemed successful initially, with most drivers and passengers providing positive feedback. The city eventually had to raise fares by $1 and put a cap of 30 rides per month per user to reduce congestion. Review by one of the city's leaders felt that though this experiment was a net positive, it could not be a substitute for a well-designed, efficient public transportation system. Uber and Lyft may read the tea leaves and tout this as an example of the benefits of ride-sharing, but I doubt that mega cities like Los Angeles, New York, Chicago, Seattle, Philadelphia, and Boston will be able to completely replace taxpayer public transportation systems.
These companies and the autonomous driving cars of Wymo believe that replacing personal trips with other ride-share cars will make commuting better. Investors believe that a decrease in owning cars will fuel these companies' financial growth. Even though I like meeting people, I don't want to get to know my neighbors by sitting in their cars frequently while traveling to meet up with friends. I am uncertain if investors will continue to contribute their money to companies that do not alleviate traffic all that much. If they do, they are taking a massive gamble that ride-sharing will make mobility in cities much better. Time will tell if the ride-share method Uber and Lyft of getting around cities will pay off in the long-term. Will investors stay for the ride?
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* Please check out an article in National Review ( JAMES P. SUTTON, July 12, 2019) that touched on this subject as well.
https://www.nationalreview.com/2019/07/uber-and-lyft-bubbles-about-to-burst/
What is the viability of these companies? Initial public offerings do bring out cheerleading from analysts on CNBC and Bloomberg, but I expect immense problems ahead. Waymo (a division of Google's parent company, Alphabet) are working on driverless cars. Will these challenges from their rivals eat into the business model? Financial reports have stated that Waymo algorithms and software is way ahead of Uber and Lyft, and could pose enough of a threat for the viability of those ride-share companies. Experts in the financial services industry and Wall Street feel that the business goals of these large companies amount to projections and "hopes" that their models will show increased revenue and will prove to be a good investment.
In the so-called "gig" economy, where there are opportunities for citizens to bring in additional revenue to their primary jobs, it does seem an option, but may not be popular for society at large. Mileage and vehicle maintenance will affect driver overhead, and tips may not be consistently large enough to make this a permanent job. There are numerous articles providing statistics that independent contractor jobs will be more prevalent in the future, despite the fact that companies these folks work for may never turn a profit. I believe many of the jobs created by the American economy that Presidents Obama and Trump herald tend to be freelance, temporary and part-time. Ride-share jobs do not allow people to earn an actual living wage but provide an opportunity to make a little extra money in addition to their primary jobs. Will this be the future that America's powerful economy will turn, and will it be good for the country? I doubt with this type of income, Americans will be able to buy homes, cars and other items that increase their quality of life.
If autonomous cars become a regular thing on city streets, it will lead to slower and more burdensome traffic in major transportation areas. Interaction between driverless cars and human drivers will not make traffic better, but worse. At the present time, the goal is to reduce cars and their resulting congestion on the road, which presumably will reduce smog and pollution. The Canadian town of Innisfil (a suburb of Toronto) attempted to "Uberize" its public transportation system and took notes on its benefit to see how it played out. It seemed successful initially, with most drivers and passengers providing positive feedback. The city eventually had to raise fares by $1 and put a cap of 30 rides per month per user to reduce congestion. Review by one of the city's leaders felt that though this experiment was a net positive, it could not be a substitute for a well-designed, efficient public transportation system. Uber and Lyft may read the tea leaves and tout this as an example of the benefits of ride-sharing, but I doubt that mega cities like Los Angeles, New York, Chicago, Seattle, Philadelphia, and Boston will be able to completely replace taxpayer public transportation systems.
These companies and the autonomous driving cars of Wymo believe that replacing personal trips with other ride-share cars will make commuting better. Investors believe that a decrease in owning cars will fuel these companies' financial growth. Even though I like meeting people, I don't want to get to know my neighbors by sitting in their cars frequently while traveling to meet up with friends. I am uncertain if investors will continue to contribute their money to companies that do not alleviate traffic all that much. If they do, they are taking a massive gamble that ride-sharing will make mobility in cities much better. Time will tell if the ride-share method Uber and Lyft of getting around cities will pay off in the long-term. Will investors stay for the ride?
_____
* Please check out an article in National Review ( JAMES P. SUTTON, July 12, 2019) that touched on this subject as well.
https://www.nationalreview.com/2019/07/uber-and-lyft-bubbles-about-to-burst/
