Every viable business creates a win-win situation. Employees get a sustainable income. Customers get value. Shareholders get profits. Uber (NYSE:UBER) doesn’t do any of that.
Employees aren’t making sustainable income and they’re not treated like employees. Shareholders aren’t seeing any profits, even at scale. Customers have been seeing value only because their rides are subsidized by shareholders.
Uber went public in May 2019 because it had to. Private equity and venture funding had grown tired of the pretense that it would work. They wanted out. Since then, the stock is down almost 33%.
Can you believe me now?
Son’s Lack of Vision
Uber is a product of SoftBank Group (OTCMKTS:SFTBY) CEO Masayoshi Son. The idea behind his Vision Fund was to disrupt huge industries, using software and Saudi money, and to have a dominant position in the resulting companies.
The fund has some winners. Paytm, the Indian payments company, looks like a winner. Kabbage, another fintech player, may be a winner. Fanatics may do OK.
Son went too big, too fast on a lot of these deals. He put in more money than many of these companies could use. He convinced founders like WeWork’s Adam Neumann (and Uber co-founder Travis Kalanick) they could do no wrong. SoftBank’s CEO became like Jeffrey Cordova in The Band Wagon, producing pretentious versions of Faust when he could have been making nice little musicals.
Son, in short, let founders run when he should have used a short leash, and a quick hook.
What Tech Can’t Do
Technology can disintermediate industries. When there’s a high cost in making something happen, technology can drop that cost to zero. It’s in transaction costs that disruptive technology earns its way.
But there isn’t enough money in taxis to make that work, even when the business scales. Uber lost $1.2 billion during the most recent quarter, on adjusted revenue of $3.8 billion. That’s a 30% gain in revenue, but the losses were 18% higher than the previous year, when they came in at $986 million.
In order to achieve those third quarter results CEO Dara Khosrowshahi bypassed normal employment checks to protect passengers, which put them in danger. It also treated the people doing its work like hot garbage. In other words, it squeezed the people on both sides of every transaction, as hard as it could, and still didn’t make any money.
The promise of Uber was it would eliminate the driver. But that was always a canard. The technology was stolen from Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Waymo, by a man named Anthony Levandowski. And it still doesn’t work.
The Bottom Line on Uber Stock
Uber is the perfect business analogy for our time.
It claimed to be profiting from the benefits of technology, but it was always about disintermediating law, not industry. Drivers were told they were qualified to be taxi drivers, and doubtless many were. Passengers were told technology could give them safe rides at a bargain price, and doubtless many got them. Investors were told that Uber stock could create a dominant position quickly, then squeeze all sides of the business for big profits.
Which was the greatest fool? I’d argue it was those who invested in the Vision Fund. Son believed his own rhetoric. The Saudis bought his reality distortion field. Son has a second Vision Fund and insists he has learned his lesson.
We shall see.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.