Whitney Tilson’s email to investors discussing his updated thoughts on Uber; Rajeev Misra built SoftBank’s huge tech fund. Now he has to save it; Adam Neumann and the Art of Failing Up.
1) Eight days ago, at the Robin Hood Investors Conference, I pitched ride-sharing company Uber (UBER), with the stock at $33, as my favorite short idea.
GrizzlyRock Value Partners was up 16.6% for the first quarter, compared to the S&P 500's 5.77% gain and the Russell 2000's 12.44% return. GrizzlyRock's long return was 22.3% gross, while its short return was -2.9% gross. Compared to the Russell 2000, the fund's long portfolio delivered alpha of 10.8%, while its short portfolio delivered alpha Read More
I warned the audience that its upcoming third-quarter earnings were likely to disappoint. Sure enough, the company reported lousy numbers after the close yesterday. Of note, Uber...
- Missed estimates for gross bookings
- Showed continued elevated costs and a deceleration in revenue and bookings growth
- Burned another $1 billion in free cash flow, consistent with a total burn this year to date of $2.9 billion
During the quarter, Uber added 4 million new customers ("Monthly Active Platform Consumers"), bringing its total to 103 million, up 26% year over year. But this really isn't so impressive when you consider that the company offers a half-dozen services (Uber Eats, scooters, freight, etc.) to what it claims is a total addressable market of more than 1 billion people. In addition, burning $1 billion to add 4 million customers isn't sustainable.
Uber reiterated its plan to be profitable in 2021. There's almost zero chance this happens. If I'm right, the company will be running out of cash by then...
Now, if you had told me that Uber was torching its cash at an alarming rate... had a large, highly motivated competitor (Lyft)... was facing multiple negative regulatory outcomes... and had just laid off 1,200 people (along with losing its COO and head of marketing), I would be concerned.
But it's far worse – and more complex – than that. Uber is also:
- Offering ride-sharing in 61 countries outside of its core North American market
- Entering the food-delivery business in many of those countries – to see how dismal that sector is, look at what has happened to the shares of Grubhub (GRUB)
- Entering the following businesses: autonomous driving, grocery delivery, freight, bicycles and scooters, air taxis, electronic payments... and probably many other things we don't know about
This is insane. How can anyone look at this mess and think Uber could possibly succeed? It might not be as crazy as The "Whee" Company, but it's not that far from it...
As some point next year, Uber will likely be forced to close most of these ventures (or sell them for a pittance) in a desperate attempt to salvage its core rides business – similar to what Whee is doing now.
If Uber is good – and lucky – it may be able to retain some value for shareholders. But it will be a lot less than the current market capitalization of nearly $50 billion.
Lastly, between 750 million and 1.5 billion shares will be released from the IPO lockup tomorrow, which will increase the current float by 2 to 4 times.
The message to investors is clear: STAY AWAY!
2) Uber's largest investor is Japanese conglomerate Softbank, which owns a 13% stake.
Last week, the Wall Street Journal published an incredibly damning article about SoftBank's $100 billion Vision Fund and its head, Rajeev Misra, who sounds like Whee Company co-founder Adam Neumann... Rajeev Misra Built SoftBank's Huge Tech Fund. Now He Has to Save It - The Wall Street Journal. Excerpt:
Mr. Misra took care of the details. To get to $100 billion, he piled on debt. That is unusual for a fund investing in unproven companies and has cost the fund billions of dollars a year in interest payments. He hired hundreds of people, many who came up not in venture capital but on Wall Street. They have invested at a ferocious pace, sometimes supplying startup companies with far more money than they initially sought.
Inside the Vision Fund, investment decisions often are made in minutes, said people familiar with its operations. A consultant's report last year quoted employees describing a "chaotic" and "personality driven" firm with few controls, where people are "incentivized to gamble to look good" and build their own personal brands...
The fund financed 40% of the $100 billion with debt, paying 7% – and invested it all in two years, rather than the planned five. Mark my words, this is going to be a train wreck of epic proportions!
3) Speaking of Neumann, not to beat a dead horse, but this New York Times article cracked me up... His wife had him all figured out the moment she met him! Adam Neumann and the Art of Failing Up. Excerpt:
And some came to wonder if Mr. Neumann had been wise to share, during a 2017 speech at Baruch College, a story from his first date with Rebekah. "She looked me straight in the eye and she said, 'You, my friend, are full of'" crap, Mr. Neumann recalled. "'She then said, 'Every single word that comes out of your mouth is fake.'"