The Greater Fool Theory on Uber Stock

Uber Technologies (NYSE:UBER) management insisted the company was in good financial shape while reporting quarterly results on Aug. 8.

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Investors no longer believe them.

The loss of $5.2 billion, $4.72 per share, on revenue of $3.16 billion sent shares off a cliff. The Uber stock price fell from $43 to the $37 per share it opened at on Aug. 13.

CEO Dara Khoswoshahi had many creative defenses for the loss. It wasn’t really cash, but stock. Expenses will start declining next year. The company will be profitable eventually.

If this were a 1999 or even a 2017 market, such explanations might be acceptable. But it’s 2019 and investors are hunkering down for a storm.

Timing Matters

Back in the year 2000, I was covering the old ad:tech show in San Francisco. I listened to young entrepreneurs complain that “all of a sudden” investors were demanding more equity and offering less cash than the year before.

I laughed so hard I cried.

Uber spent years burning cash to gain market share, with the promise that in time it would start spending less than it was taking in, but it’s now a scaled business. Bookings for the second quarter were $15.8 billion. But Uber still had an operating cash flow loss of $1.6 billion, up from $450 million a year earlier.

Uber still had cash at the end of June, some $11.7 billion, from previous stock sales. During the first six months of 2019 the company handed out another $3.95 billion in “stock-based compensation.” That’s more than half its loss, and over 5% of its $63 billion market cap. How can a public stockholder hope to see a profit when their investment is being watered-down like that? Is this the Erie Railroad? 

There are still analysts pushing Uber stock. They say the business is becoming more rational, that discounts are disappearing, that its food delivery service is growing, that its bikes and scooters are bringing in cash.

This is like selling Tesla (NASDAQ:TSLA) shares based on its solar panel business. Even if it’s growing, it’s not a huge piece of the whole, and it’s still losing money.

Uber Stock in Contrast With Lyft

Friends of former Uber CEO Travis Kalanick insist Uber’s problem is that it’s not ruthless enough.  But Uber’s ruthlessness is costing it market share.

Uber still has 70% of the ride share market, but Lyft (NASDAQ:LYFT) is catching up in big markets like California, Washington State, and New York. Uber is strongest in places like Montana, West Virginia, and Mississippi.

While Uber was making excuses, Lyft was making progress. It’s still losing money, but its cash drain from operations was down to $69 million for the first six months of the year, from $111 million a year earlier. Lyft is guiding toward much smaller losses in the second half.

I still wouldn’t buy Lyft shares. The company announced its lock-up period will end on Aug. 19, ahead of schedule. Over 250 million shares will be eligible to come onto the market that date. Lyft currently has 273 million shares outstanding. 

Bottom Line on Uber Stock

One big difference between the current decade and the boom of the 1990s is that current gains have all gone to private investors. Before these companies came to the public market their growth was already slowing.

If you got founders shares or participated in an early round at Uber, you made a fortune. But the clock was always ticking on the boom. Uber was built on the greater fool theory.

You are the fool they were waiting for.

Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.

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