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The Inevitable Fall of Uber Technologies, Inc. (NYSE: UBER)

Written by Jason Stutman
Posted December 21, 2019

Within the next 10 years, Uber Technologies, Inc. (NYSE: UBER), one of the most recognized technology companies in the world today, will no longer exist as an independent, publicly traded firm.

It’s the kind of prediction that at first many people might scoff at, but it’s also one that becomes incredibly obvious when you stop and think about it. 

If you own shares of Uber, or if you’ve thought about grabbing a piece of the ride-sharing giant following its recent IPO, I would seriously urge you to read this first. Here are three blaring alarms for $UBER:

Alarm #1: Massive Insider Selling

We’ll start with the tea leaves present at the time of this writing. On Monday, Bloomberg published an article under the headline “Travis Kalanick Is Exiting His Uber Holdings Uber Quick.”

Kalanick, for those who aren’t familiar, is Uber’s so called “bad-boy” co-founder, who was ousted from the company following a long string of public relations mishaps. Perhaps the most prominent was a video of the then-CEO berating one of the company’s partners (a.k.a. a driver) during a late-night Uber ride.

Under Kalanick, Uber was notorious for its “toxic bro culture.” At least, that was the foundation for a campaign that kicked Kalanick out of a leadership role at the company he himself had founded.

For a man like Kalanick, though, the ousting was effectively a mosquito bite, given his enormous stake in what was arguably Silicon Valley’s most prolific unicorn. At the time of Uber’s IPO in May 2019, Kalanick owned 117.5 million shares of the company. He was the biggest individual shareholder, with a personal stake that trailed only two entities: SoftBank and Benchmark Capital.

Fast-forward half a year, though, and Kalanick’s stake in Uber has been drastically reduced. As highlighted in the aforementioned Bloomberg feature, the co-founder has already dumped $2.1 billion in company stock.

The real kicker here is that Kalanick hasn’t even been allowed to sell his shares for the majority of that time period. Share lockup only ended on November 6, yet he’s already unloaded over two-thirds of his original stake.

Obviously, this doesn’t show much confidence in Uber’s future from the company’s own creator, enough to sound the alarm for Uber’s current shareholders. 

Of course, it might be worth mentioning that Steve Jobs sold most of his shares in Apple after he was ousted from the company in 1985, but Kalanick isn’t coming back to save the company like Jobs did for Apple. This is a dump and run.

Kalanick isn’t the only major stakeholder unloading on shares, either. Co-founder and Director Garrett Camp has dumped $35 million since November. Chief Product Officer Manik Gupta has sold about $1.5 million. 

Alarm #2: Apparent Desperation for Cash

Along with Kalanick’s flash sale of Uber’s shares, Uber is also selling a piece of itself this month. That is, there are now strong rumors that the company has entered into advanced talks to sell Uber Eats India to local rival Zomato. 

Wall Street has so far applauded the potential sale with a 5.5% stock rally on the news, but only for one reason: It would provide Uber a much-needed cash injection after the company’s lackluster IPO. 

The celebration, though, seems both shortsighted and premature. The rumored price for the deal is floating around only $400 million.

Sure, that might seem like a boatload of cash, but it’s really a drop in the bucket considering how quickly Uber is burning through its balance sheet. At a burn rate of $1.2 billion per quarter, that’s just one month of additional runway.

At a $51 billion market cap and just $13.05 billion in annual revenue, Uber is being priced as a growth stock. With the company siphoning off a major asset like Uber Eats in a major market like India, the growth thesis becomes that much less compelling. 

Simply put, now that Uber is publicly traded, it no longer has access to private cash injections. In less than a year, it’s beginning to cannibalize itself to put off starving.

Alarm #3: Research and Development Is Dying

At the core of Uber’s cash burn is a business model that’s highly unprofitable due to one primary expense: a 75% cut taken by Uber’s partners/drivers.

Well, technically speaking, it’s not actually an expense. Uber takes 25% from fares as a “service fee,” leaving 75% of the sale in its partners’ hands. On the books, it was never really Uber’s revenue to begin with, but, putting the company’s questionable technicalities aside, this is effectively the wage it pays its employees. 

Uber has made it entirely clear that, through research and development, it wants to eliminate that expense, or capture all that lost revenue, whichever way you want to put it. The idea is that with automated vehicles (driverless cars), the company could operate its own ride-hailing fleet without having to give a dime to human drivers.

Uber, though, is not alone in this ambition. It’s in a race against Alphabet Inc.’s (NASDAQ: GOOG) subsidiary Waymo, Tesla, Inc. (NASDAQ: TSLA), Ford (NYSE: F), and General Motors (NYSE: GM), just to name a few companies with their hats in the ring.

Worse yet, Uber is hopelessly behind in terms of technological development. The company admitted in November that it will likely have to strike a licensing deal with Waymo if it wants to get its driverless technology off the ground. 

This statement came after an expert review that revealed Uber is still using Waymo’s autonomous self-driving software, a required component of a legal settlement reached in February 2018. Prior to the settlement, Uber was facing a federal jury trial concerning intellectual property theft, after poaching former Waymo engineers.

As far as driverless technology goes, Uber is effectively at the mercy of Waymo unless it wants to start entirely from scratch or sell out to an auto manufacturer like Ford or GM. 

Either way, investors can expect a good chance of Uber going broke or being acquired within the next decade.

Until next time,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and Topline Trader. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.

Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.

Outside the office Jason is a lover of science fiction and the outdoors. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.

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