Don’t Tell Investors! The Uber IPO Is a $50 Billion Pipe Dream

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Private equity and venture capitalists don’t look to invest in the small guys anymore — they’re hunting unicorns nowadays.

Shhh...Don't Tell Investors! The Uber IPO Is a $50 Billion Pipe-DreamA “unicorn” is a private company with a valuation north of $1 billion … and there are currently 140 of them.

Uber, the ride-hailing app with dreams of flipping the delivery and logistics industry on its head, is now the most valuable unicorn — it currently has a valuation north of $51 billion. At that size, there’s no doubt an Uber IPO is on the way, as its investors seek liquidity for a payday.

The hype behind the Uber IPO will reach a fever pitch not seen since the Alibaba (BABA) IPO in 2014, and may even rival the buildup behind the Facebook (FB) IPO of 2012.

Do not — under any circumstances — believe the hype.

Here’s why the Uber IPO will be a huge rip-off for Main Street:

Uber’s Own Problems

Most consumers think of Uber as an alternative to taxis. Download the app, request a ride, and your own “private driver” will appear to shuttle you to your destination. You can see drivers’ ratings and estimated time of arrival, and the payment occurs effortlessly through the app.

While Uber has been uber-successful as a glorified taxi service, that’s not the reason Silicon Valley is giving it a $50 billion-plus valuation.

The pie-in-the-sky dream with Uber is that it will become the go-to platform for on-demand delivery and logistics. It’s more like the next FedEx (FDX) or UPS (UPS) than the next Yellow Cab.

Or so the legend goes.

But no one talks about the elephant in the room: Uber has yet to make a dent in logistics.

In fact, a June Wall Street Journal article served Uber with a merciless reality check, detailing how it lost out to a startup on the opportunity to deliver for Apple (AAPL) and Starbucks (SBUX). That startup, Postmates Inc., was worth less than 1% of Uber at last check.

Its food-delivery service, Uber Eats, has also failed to take off, the article notes, and Uber’s plans to invest more than $1 billion in China this year risk being incredibly ill-timed … you know, given the sudden and unexpected slowdown in China’s economy and all.

But wait, there’s more! Even if Uber starts capitalizing on its delivery angle, it faces steep competition.

Everyone Wants a Piece of the Pie

Perhaps Uber’s most formidable foe out of the gate is Amazon (AMZN), which last week announced Amazon Flex, a package-delivery service staffed by anyone with a car, an Android phone and a driver’s license.

Amazon Flex will pay drivers between $18 and $25 an hour, but unlike Uber, drivers will need to work in shifts of either two, four or eight hours.

Not only could this lure drivers away from Uber, but it clearly eats into Uber’s market opportunity.

Moreover, as AMZN has proven time and time again, the company is more than willing to lose money on farfetched ventures for the sake of market share.

Alphabet Inc. (GOOG, GOOGL) is also getting into same-day and overnight delivery with Google Express, meant to combat the e-commerce dominance and compelling offerings of Amazon Prime. GOOG is even planning on getting into the grocery delivery market later this year — a market Amazon has already ventured into.

Where you at, Uber?

It’s a rhetorical question, because Uber is nowhere to be found.

Sure, Uber has been pretty secretive about its plans, so we don’t know what’s going on behind the curtains.

One thing that does seem clear though is that the company is working on a self-driving car. That way, pesky labor costs go right out the window. Maybe that’s a sound reason to buy the Uber IPO?

Not exactly.

The idea is sound in theory, but it’s not so great when you consider that Uber is a noober when it comes to self-driving cars. Google’s been working on one for years, Tesla (TSLA) already has some autonomous driving features in its models and even Apple is rumored to be working on a futuristic, electronic, partially autonomous Apple Car.

Shhh...Don't Tell Investors! The Uber IPO Is a $50 Billion Pipe-Dream

Who you got: Travis Kalanick or Elon Musk, modern-day Iron Man?

Google’s already in the same-day delivery market, and although Tesla is thought of primarily as a tech-auto company, it could easily venture into the space as well.

In fact, Uber CEO Travis Kalanick has been quoted as saying that if Tesla makes a mass-produced autonomous vehicle by 2020, he’d buy them all. However, a recent conference call Q-and-A with Tesla CEO Elon Musk implied that Tesla may prefer to “cut out the middleman” and operate its own ride-sharing service instead.

Don’t be surprised if Musk opts to do just that. This is a man who wants to colonize outer space and die on Mars, ladies and gentlemen. (“Just not on impact,” he says.)

Bottom Line

Uber — and by extension the upcoming Uber IPO — is being marketed to the Main Street investor as the ultimate solution to modern-day local logistics. But so far, its experimentation in delivery has been an utter failure.

In truth, it’s a glammed-up cab company with a fancy app struggling to turn a profit. And even that side of the business hasn’t been critically examined, for heaven’s sake.

Ask yourself:

  • What happens to Uber in a recession? Will people pay $15 to get to the bar a little faster on a Friday night, or will they take the metro? Will they go to the bar at all? Has Uber disrupted bicycles? Bye-bye surge pricing.
  • What happens when gas prices go up? Uber will have to either pay drivers more or charge customers more; both hurt its business.
  • What happens when other companies, like Amazon with Amazon Flex, start crowdsourcing drivers? Will Uber increase wages or shed drivers?
  • How does Uber react if Tesla creates a mass-produced self-driving car … and cuts Uber out?

Then there’s Uber’s valuation. At a market capitalization of $51 billion, Uber’s fetching a valuation of about 25 times 2015 revenue estimates.

You know who deserves that kind of valuation? No one — and certainly not the Uber IPO.

There are about 140 publicly traded companies worth $50 billion or more. You know how many trade at 25 times revenue?

Zero.

Because unicorns don’t exist.

As of this writing, John Divine was long shares of AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/uber-ipo-overvalued-pipe-dream/.

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