David Rosenthal: belief

Transcript context

…Completely. It's that and it's because this is all lumped together into one category here. It's also very likely due to the aggressive marketing spend for the rapid expansion of Uber Eats. But nonetheless, you don't want to see a contribution margin shrinking as a company is getting more mature. I think those are the two biggest things, the growth and the contribution margin, that are scary from a bear perspective. One thing to flag is that a lot of very high profile investors, including Founder Collective, and Softbank, are selling big chunks of their shares in the IPO. They sold them last night to new investors in a secondary transaction, rather than waiting for the lockup period. I wouldn't read too much into this because the money's been tied up for a long time, they're trying to get liquidity. This is not unprecedented, but it's certainly not an encouraging sign if you're a potential buyer. I agree not to read too much. These are shareholders that have been holding the shares for a very long time. I think the question is, a lot of the questions that emerged when the dynamic changed for Uber, both nationally in the US and globally with the emergence of peer to peer ride sharing, the hope was that the massive amounts of capital raised and the operational investments would have settled those questions over the last four or five years. They're still very much open questions. It doesn't mean the market is still enormous, massive, and the potential is there. Relative to the way, way back in the beginning of this episode, where there were 1500 taxicab medallions in San Francisco, this market is so much bigger and open. But who will win, how it will play out, and the unit economic impact of that is still an open question. Yup. The other thing is this isn't really a bull or bear, but it's interesting to just think about this, 20% of the value of this company is actually a holding company. They own 15% of DiDi in China, 38% of Yandex Taxi in Russia, 23% of Grab in Southeast Asia. That's $18 billion of equity that they own in these other companies. If everyone remembers the Altaba episode with Yahoo and Alibaba, being a holding company that owns a bunch of other assets, you don't get to value the assets at exactly what they're trading for because there's inherent risk in, is this entity going to be able to get liquid on those assets if they ever needed to.? A good chunk of Uber's valuation is actually holding these foreign ride sharing companies. All right, that's bull and bear. Let's go and grade this thing. I'll make a couple of points first before we paint what an A-plus would look like if we had 6-12 months to reflect back on this thing, and then of course, what an F would look like. It's worth noting that every shareholder who bought shares since the end of 2015, including everyone who bought in the IPO last night, is now underwater. They had a pretty terrible narrative leading up to this thing that was really botched, where a year ago, investment fingers were rumoring that there would be a $120 billion dollar market cap for this company when it IPO'd. A couple of months ago, the rumor changed to $100 billion. Then they gave guidance that they were going to have an IPO range that went somewhere from mid 80s up to low 90s, and then they priced at the very bottom of that range. Coming into this IPO, it already felt like it had been sliding. The public sentiment was, I'm buying something on the way down. It's not surprising that there wasn't a big pop on the first day. Uber, to their credit, was conservative on pricing, which I think was a good idea. But the question is, what do you have to believe to love this right now? One is that ride sharing will somehow get less competitive, marketing spend will decrease. The other is that they've built this incredible infrastructure. Now they can really light it up with Uber Eats and other things on their infrastructure that are great businesses. But of course, Uber Eats is also wildly competitive with DoorDash and Grubhub. That's also not a smooth sailing market. What this section really tries to get after is, great, they just raised $9 billion. Are they going to be able to effectively use that? And what will it look like if they effectively use that? They needed to raise a bunch of money. I will say it went well by the criteria of, oh, my God, they needed to raise a bunch of money and get it into the company's coffers, and they did. There's no pop, so people who bought the IPO, at least so far, did not see an immediate benefit, although, they should be holding for a long time anyway. We'll see what happens in a year.…

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