Late Thursday, April 11, Uber officially filed for its long-awaited Initial Public Offering, regarded by many as the most important technology IPO in years. The ride-hailing and food-delivery company will, according to reports, offer about $10 billion worth of newly-minted stock to the public, possibly starting in May. That would value the whole entity at as much as $100 billion. This is despite the fact that Uber has never turned an operating profit, and has made no clear case that it ever will.
The Uber IPO is, in other words, a shitcoin.
Would you rather:
— Exceptionally Hodlnaut (@davidzmorris) April 11, 2019
For those who might not be familiar: the “shitcoin” was a phenomenon of the 2017 crypto bubble. Would-be ‘entrepreneurs’ seized on the ease of issuing a new cryptocurrency, and wild public interest in owning them, to issue dozens based on flimsy or outright fraudulent promises of future adoption and growth. These issuances (which still occur, though in much-diminished form) were known as “ICOs,” or Initial Coin Offerings.
Of course, unlike a proper shitcoin, Uber stock will not (as far as we know) be issued on an immutable blockchain. It will also, to its credit, be issued legally. But like any good shitcoin, it will result in a massive fleecing of overhyped retail investors, to the benefit of founders and early large investors, at least in the short to medium-term.
That’s not a hard case to make. Lyft, essentially a smaller and less overtly malicious competitor to Uber, issued its IPO on March 29. The stock hit the market at $72 dollars a share. The stock closed Thursday at $61—down more than 15 percent in less than two weeks. With the total initial sale of Lyft stock garnering $2.34 billion, IPO buyers have lost a total of $350 billion on paper.
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Where did all that missing money go? Allegedly, into the pockets of Lyft’s founders, early employees, and, most notably, the venture capitalists who funded the startup. Venture capitalists are the tech-stock equivalent of the insiders who got early access to Initial Coin Offerings, usually with a hefty discount against the public price. This made it easy to “dump” coins to individual retail investors. Though some retail investors made money, the price of most ICOs has cratered since their 2017 heyday.
In fairness, Lyft stock has probably taken an extra hit because of Uber’s IPO announcement. But both companies are subject to the same immutable truth: They don’t make any money. In fact, they lose lots of it. Uber technically turned a profit ahead of its IPO filing, but only because it sold off its Russian and Southeast Asian branches last year. Its operating loss was $3 billion.
To spell that out: Uber can claim a profit because it sold portions of its businesses that were themselves losing money. DJ Khaled would be so proud.
(The much smaller Lyft lost $911 million last year.)
Uber and Lyft can dump their shitcoin IPOs because, while they’re losing money now, they’ve cultivated the idea that they’ll figure out how to become wildly profitable in the future. There’s precedent for that: Amazon famously lost money for a solid six years after its IPO, then barely stayed in the black for another decade before turning into a cash geyser.
Uber is about as comparable to Amazon as TenX is to Monero. Uber’s path to profitability, at least as a ride-hailing service, hinges on several immutable factors—its need to pay drivers, and its need to compete on price. Uber hasn’t yet figured out how to pay less in wages and other expenses than it charges customers, which would be necessary for it to generate what’s known among financial gurus as “a profit.”
Shitcoin issuers used nonsensical explanations of how their tokens would, someday, become incredibly valuable. For years, the story was that Uber would turn profitable by creating its own self-driving cars. At the time—roughly 2013-2017—autonomous vehicles were believed to be just a few years away. But the challenge proved a lot bigger than even Elon Musk realized, and Uber’s program in particular was, in so many words, a clusterfuck of alleged IP theft and shoddy oversight. Then in March 2018, an autonomous Uber killed a 49-year-old woman and the program was effectively put on ice.
So how does Uber plan to turn a profit now? That’s actually shockingly difficult to suss out. In a letter issued alongside the IPO, CEO Dara Khosrowshahi wrote that “Just a small percentage of people in countries where Uber is available have ever used our services. And we are still barely scratching the surface when it comes to huge industries like food and logistics.” In other words, they’ll make money by growing. My math education stopped at Calculus 1, but I think growing a money-losing company with high labor costs just means you lose more money.
The IPO prospectus does say Uber will keep lowering what it pays to drivers, who are already increasingly vocal about pay that some say amounts to less than minimum wage. Cutting deeper, even the document itself admits, will make it harder to keep drivers on the road and customers happy.
All of that, of course, comes after an entirely different narrative that would be right at home in the shady world of shitcoins: The story of Uber’s sexist, bullying, exploitative corporate culture under founder and former CEO Travis Kalanick. It was Kalanick who premised Uber’s early growth on brazenly breaking transportation regulations across America. And it will be Kalanick, along with a few others, who walks away from the imminent Uber IPO with a giant pile of cash. Kalanick is already a billionaire after selling a large stake to Softbank, but his remaining holdings could make his remaining stake worth $7 billion.
The Uber IPO will probably be successful, if you define success as “giving the founders a chance to cash out.” Just as shitcoins rode the coattails of media hype around newly-minted bitcoin millionaires, flimsy stock offerings still enjoy the sheen of massive runups in companies like of Apple and Facebook—even when their business models have nothing in common. And of course, Uber certainly could become profitable: Give anyone a giant pile of cash, and they’ll eventually figure out how to turn it into more, even if they have to set most of it on fire first.
Crypto scammers, clearly, have a lot to learn.