WE ARE NOT ALL EQUALS
Hey <<First Name>>,
On Friday, Uber’s IPO was the most hotly anticipated IPO since Facebook’s in 2012 for a multitude of reasons. Globally, Uber has forever altered the way we travel, talk, work, and eat. It introduced the world to the “gig-economy” or freelance lifestyle, giving drivers complete control of their schedule and salary.
In Silicon Valley, Uber’s playbook for expansion was a stark contrast from previous internet companies. They relentlessly expanded across the world, raising cash never seen before in an era of low interest rates and a high appetite for private tech investments. The critique is that they went too fast and broke regulations — but if they didn’t do that, the business wouldn’t exist.
And now everyone can own a piece!
The ride-sharing company’s stock declined as much as 8.8% during its trading debut on Friday. Founders and early investors are still going to get spectacularly rich, but late-comers and retail investors may find there's not much upside left.
For better or worse Uber is the definition of the next generation of Silicon Valley startups. The growth and popularity of the Company fueled the notion of growth at all costs, and the ushering in of trillions of investment capital into startups. Most of these new companies are bleeding red ink by the billions and will take years for them to get into the black — if they ever become profitable at all. New Uber investors will be buying shares in a company that has already burned through $27B in cash, the most ever for a company entering the public market and will burn through tens of billions more on the road to profitability.
Interestingly enough, Uber still has the framework of an early startup; continually raising funds in search of ways to make their model profitable.
I received a ton of calls this week regarding “how good of an investment is Uber?” from retail investors. Sadly enough, the way markets now operate is robbing average investors. Today’s tech start-ups going public have built big businesses as private companies that only an extremely small segment of our society has the ability to access. It’s the retail investors now that get the “leftovers” once private companies have maxed out their valuations for their private investors, and only go public when they can no longer raise capital.
Companies are no longer going public in early growth stages and therefore the ability to invest early on, hold onto those shares, and enjoy favorable returns will be virtually nonexistent for the average American investing in today’s public markets.
Uber is a popular choice. We all use it frequently, its growth is easily visible, and everyone wants a piece of the next hot thing. Some novice investors may think they know Uber, but actually they don’t. Knowing the brand and knowing the investment risks and rewards are two different things. Legendary investor, Peter Lynch always preached for us to, “invest in the things you know”. But familiarity with the brand and emotion are not the best reasons to make an investment
The growth and popularity of Uber created a new paradigm in the valley, but a number remain deeply unprofitable, and the time they spent in the private markets, increasing in size and value, has made the Valley rich, but ultimately raised questions about where they go from here.
But IPOs are just a moment in time, and Uber has still managed to become a $76B company in less than a decade. Facebook gained just 23 cents on its IPO days before spending 15 months below its IPO price; now it's the world's fourth most valuable company. Uber isn’t going anywhere anytime soon and has all the time and money to make it right for those on the sideline!