Uber will soon join an ugly but exclusive club: Unprofitable companies worth more than $50 billion - CNBC

Dara Khosrowshahi, now CEO of Uber, on July 7, 2016 in Sun Valley, Idaho

Drew Angerer | Getty

When Uber starts trading publicly in the coming weeks, it will join a very exclusive but less-than-desirable club — companies worth at least $50 billion that are losing money.

Of the 110 U.S. companies with a market capitalization of at least $50 billion, only three were unprofitable last year: CVS, General Electric and Qualcomm. And Qualcomm doesn't really count because its loss was the result of a one-time charge for a change in the tax code.

Uber reported an operating loss of $3 billion in 2018 after losing more than $4 billion the prior year. (The company recorded a net profit last year because of $5 billion worth of one-time gains, mostly from selling its Russian and Southeast Asian businesses.)

This is Uber's central challenge as it moves from the cozy confines of the Bay Area, where venture capital and private equity firms fund futuristic projects, to the rigors of Wall Street, populated by more risk averse mutual funds and wealth managers focused on financial performance. The latter group has never seen anything like Uber — a company that's already valued as a screaming success even though the business model remains very much a work in progress.

On Friday, Uber set the pricing range of its upcoming IPO of $44 to $50, giving it a market cap of $83.8 billion at the high end. That would make it the 65th most valuable company in the U.S., just behind DowDuPont and in front of U.S. Bancorp, which generated net income last year of $3.8 billion and $7.1 billion, respectively.

"If you're wrong on this and you're paying a sky-high valuation, truly look out below," said Brian Yacktman, chief investment officer of YCG Investments, which manages about $700 million and counts Alphabet and Facebook among the top holdings in its mutual fund. "When you can buy a business at a similar market cap that's currently producing cash flow with much more certainty of outcome, why not take that instead?"

To buy or not to buy

Yacktman sees the value in Uber as a service. He knows it saves time, makes payments easy and provides a much more comfortable ride than your typical cab. Food delivery also makes perfect sense, given there's a huge fleet of cars on the streets.

But Yacktman just doesn't get the investment pitch.

Riders are cost-sensitive and have choices, whether it's Lyft (whose stock is well below its IPO price from last month), a taxi or public transportation. On the flip side, drivers have to make enough money to stay on the platform while also paying for gas and maintenance. After doing what it can to make both riders and drivers happy, and spending the money necessary to run the platform, Uber doesn't have much money left for itself.

Uber has a metric called core platform contribution margin, which is the percentage of revenue left after "direct expenses." That number came in at 9% of revenue for 2018, and that's before accounting for all the investments in emerging products. In the first quarter of 2019, the number is turning south, with Uber expecting a negative margin of between 4% and 7% because of competition and spending on Uber Eats, the food delivery business.

"I'd rather buy one of the host of profitable companies showing me the money now and take a wait-and-see approach with Uber to determine if this is a sustainable profitable business model," said Yacktman.

Large-cap companies that are losing money today are being punished by the market. CVS shares have plunged 22% in the past year, while GE has lost 31%.

Source: CNBC

Uber has a very different story to tell than those two companies, which are stuck in legacy markets and struggling to find opportunities for growth. Only a decade old, Uber is pioneering a new industry and working towards a future of self-driving cars, all while growing 42% last year to over $11 billion in revenue.

Uber's vision is to build global platform that includes ride-sharing in its current form, a continued expansion of Uber Eats and with a whole lot more.

There's Uber Freight, which connects trucking companies with businesses that ship large amounts of goods, autonomous vehicles, drone delivery and Uber Elevate aiming to address "air transportation within cities." Uber also acquired Jump Bikes, which currently has a network of e-bikes in 20 cities, and the company offers electric scooters in eight cities.

For Uber, it all adds up to an addressable market that the company says is in the many trillions of dollars. CEO Dara Khosrowshahi says at the beginning of the video for the online roadshow that the company's "mission is to ignite opportunity by setting the world in motion" and that it's "changing the way people and things move from point A to point B."

Nelson Chai, Uber's finance chief, follows by telling investors that the company is "setting the foundation for attractive long-term margins."

But it's an ambitious plan that requires decades — not years — of investment and far more capital than the $9 billion or so the company is seeking to raise in its IPO. The bet for a public investor is that eventually Uber's experimental projects turn into real businesses and the company will be far enough ahead of any potential competition to have pricing power.

"With Uber, you have the potential to create an ecosystem premium," said Eric Barden, president of Barden Capital in Austin, Texas. "If that's the case, you can be more constructive about future profitability."

Barden has no plans to invest in Uber, because he sees too many variables and risks to that kind of valuation. But he also recognizes that the public market investing landscape has changed in recent years to wildly favor growth investors and that a cash-burning machine like Uber can't be dismissed.

Source: CNBC

Amazon and Netflix are both profitable but just barely. Amazon's net profit margin of 4.3% last year ranked 98th amount the 110 most valuable companies, and Netflix's 7.7% margin was 86th.

Yet, Amazon is up 542% in the past five years, and Netflix has gained 717%. The S&P 500, meanwhile, has climbed just 58% over that stretch.

"Old valuation metrics aren't always applicable anymore," said Barden, who's an investor in both Amazon and Netflix. "It's hard to make money playing the undervaluation arbitrage."

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https://www.cnbc.com/2019/04/27/uber-one-of-only-3-unprofitable-companies-worth-more-than-50-billion.html

2019-04-27 17:53:54Z
52780278331384

Uber will soon join an ugly but exclusive club: Unprofitable companies worth more than $50 billion - CNBC

Dara Khosrowshahi, now CEO of Uber, on July 7, 2016 in Sun Valley, Idaho

Drew Angerer | Getty

When Uber starts trading publicly in the coming weeks, it will join a very exclusive but less-than-desirable club — companies worth at least $50 billion that are losing money.

Of the 110 U.S. companies with a market capitalization of at least $50 billion, only three were unprofitable last year: CVS, General Electric and Qualcomm. And Qualcomm doesn't really count because its loss was the result of a one-time charge for a change in the tax code.

Uber reported an operating loss of $3 billion in 2018 after losing more than $4 billion the prior year. (The company recorded a net profit last year because of $5 billion worth of one-time gains, mostly from selling its Russian and Southeast Asian businesses.)

This is Uber's central challenge as it moves from the cozy confines of the Bay Area, where venture capital and private equity firms fund futuristic projects, to the rigors of Wall Street, populated by more risk averse mutual funds and wealth managers focused on financial performance. The latter group has never seen anything like Uber — a company that's already valued as a screaming success even though the business model remains very much a work in progress.

On Friday, Uber set the pricing range of its upcoming IPO of $44 to $50, giving it a market cap of $83.8 billion at the high end. That would make it the 65th most valuable company in the U.S., just behind DowDuPont and in front of U.S. Bancorp, which generated net income last year of $3.8 billion and $7.1 billion, respectively.

"If you're wrong on this and you're paying a sky-high valuation, truly look out below," said Brian Yacktman, chief investment officer of YCG Investments, which manages about $700 million and counts Alphabet and Facebook among the top holdings in its mutual fund. "When you can buy a business at a similar market cap that's currently producing cash flow with much more certainty of outcome, why not take that instead?"

To buy or not to buy

Yacktman sees the value in Uber as a service. He knows it saves time, makes payments easy and provides a much more comfortable ride than your typical cab. Food delivery also makes perfect sense, given there's a huge fleet of cars on the streets.

But Yacktman just doesn't get the investment pitch.

Riders are cost-sensitive and have choices, whether it's Lyft (whose stock is well below its IPO price from last month), a taxi or public transportation. On the flip side, drivers have to make enough money to stay on the platform while also paying for gas and maintenance. After doing what it can to make both riders and drivers happy, and spending the money necessary to run the platform, Uber doesn't have much money left for itself.

Uber has a metric called core platform contribution margin, which is the percentage of revenue left after "direct expenses." That number came in at 9% of revenue for 2018, and that's before accounting for all the investments in emerging products. In the first quarter of 2019, the number is turning south, with Uber expecting a negative margin of between 4% and 7% because of competition and spending on Uber Eats, the food delivery business.

"I'd rather buy one of the host of profitable companies showing me the money now and take a wait-and-see approach with Uber to determine if this is a sustainable profitable business model," said Yacktman.

Large-cap companies that are losing money today are being punished by the market. CVS shares have plunged 22% in the past year, while GE has lost 31%.

Source: CNBC

Uber has a very different story to tell than those two companies, which are stuck in legacy markets and struggling to find opportunities for growth. Only a decade old, Uber is pioneering a new industry and working towards a future of self-driving cars, all while growing 42% last year to over $11 billion in revenue.

Uber's vision is to build global platform that includes ride-sharing in its current form, a continued expansion of Uber Eats and with a whole lot more.

There's Uber Freight, which connects trucking companies with businesses that ship large amounts of goods, autonomous vehicles, drone delivery and Uber Elevate aiming to address "air transportation within cities." Uber also acquired Jump Bikes, which currently has a network of e-bikes in 20 cities, and the company offers electric scooters in eight cities.

For Uber, it all adds up to an addressable market that the company says is in the many trillions of dollars. CEO Dara Khosrowshahi says at the beginning of the video for the online roadshow that the company's "mission is to ignite opportunity by setting the world in motion" and that it's "changing the way people and things move from point A to point B."

Nelson Chai, Uber's finance chief, follows by telling investors that the company is "setting the foundation for attractive long-term margins."

But it's an ambitious plan that requires decades — not years — of investment and far more capital than the $9 billion or so the company is seeking to raise in its IPO. The bet for a public investor is that eventually Uber's experimental projects turn into real businesses and the company will be far enough ahead of any potential competition to have pricing power.

"With Uber, you have the potential to create an ecosystem premium," said Eric Barden, president of Barden Capital in Austin, Texas. "If that's the case, you can be more constructive about future profitability."

Barden has no plans to invest in Uber, because he sees too many variables and risks to that kind of valuation. But he also recognizes that the public market investing landscape has changed in recent years to wildly favor growth investors and that a cash-burning machine like Uber can't be dismissed.

Source: CNBC

Amazon and Netflix are both profitable but just barely. Amazon's net profit margin of 4.3% last year ranked 98th amount the 110 most valuable companies, and Netflix's 7.7% margin was 86th.

Yet, Amazon is up 542% in the past five years, and Netflix has gained 717%. The S&P 500, meanwhile, has climbed just 58% over that stretch.

"Old valuation metrics aren't always applicable anymore," said Barden, who's an investor in both Amazon and Netflix. "It's hard to make money playing the undervaluation arbitrage."

Subscribe to CNBC on YouTube.

Let's block ads! (Why?)

https://www.cnbc.com/2019/04/27/uber-one-of-only-3-unprofitable-companies-worth-more-than-50-billion.html

2019-04-27 17:37:11Z
52780278331384

Uber will soon join an ugly but exclusive club: Unprofitable companies worth more than $50 billion - CNBC

Dara Khosrowshahi, now CEO of Uber, on July 7, 2016 in Sun Valley, Idaho

Drew Angerer | Getty

When Uber starts trading publicly in the coming weeks, it will join a very exclusive but less-than-desirable club — companies worth at least $50 billion that are losing money.

Of the 110 U.S. companies with a market capitalization of at least $50 billion, only three were unprofitable last year: CVS, General Electric and Qualcomm. And Qualcomm doesn't really count because its loss was the result of a one-time charge for a change in the tax code.

Uber reported an operating loss of $3 billion in 2018 after losing more than $4 billion the prior year. (The company recorded a net profit last year because of $5 billion worth of one-time gains, mostly from selling its Russian and Southeast Asian businesses.)

This is Uber's central challenge as it moves from the cozy confines of the Bay Area, where venture capital and private equity firms fund futuristic projects, to the rigors of Wall Street, populated by more risk averse mutual funds and wealth managers focused on financial performance. The latter group has never seen anything like Uber — a company that's already valued as a screaming success even though the business model remains very much a work in progress.

On Friday, Uber set the pricing range of its upcoming IPO of $44 to $50, giving it a market cap of $83.8 billion at the high end. That would make it the 65th most valuable company in the U.S., just behind DowDuPont and in front of U.S. Bancorp, which generated net income last year of $3.8 billion and $7.1 billion, respectively.

"If you're wrong on this and you're paying a sky-high valuation, truly look out below," said Brian Yacktman, chief investment officer of YCG Investments, which manages about $700 million and counts Alphabet and Facebook among the top holdings in its mutual fund. "When you can buy a business at a similar market cap that's currently producing cash flow with much more certainty of outcome, why not take that instead?"

To buy or not to buy

Yacktman sees the value in Uber as a service. He knows it saves time, makes payments easy and provides a much more comfortable ride than your typical cab. Food delivery also makes perfect sense, given there's a huge fleet of cars on the streets.

But Yacktman just doesn't get the investment pitch.

Riders are cost-sensitive and have choices, whether it's Lyft (whose stock is well below its IPO price from last month), a taxi or public transportation. On the flip side, drivers have to make enough money to stay on the platform while also paying for gas and maintenance. After doing what it can to make both riders and drivers happy, and spending the money necessary to run the platform, Uber doesn't have much money left for itself.

Uber has a metric called core platform contribution margin, which is the percentage of revenue left after "direct expenses." That number came in at 9% of revenue for 2018, and that's before accounting for all the investments in emerging products. In the first quarter of 2019, the number is turning south, with Uber expecting a negative margin of between 4% and 7% because of competition and spending on Uber Eats, the food delivery business.

"I'd rather buy one of the host of profitable companies showing me the money now and take a wait-and-see approach with Uber to determine if this is a sustainable profitable business model," said Yacktman.

Large-cap companies that are losing money today are being punished by the market. CVS shares have plunged 22% in the past year, while GE has lost 31%.

Source: CNBC

Uber has a very different story to tell than those two companies, which are stuck in legacy markets and struggling to find opportunities for growth. Only a decade old, Uber is pioneering a new industry and working towards a future of self-driving cars, all while growing 42% last year to over $11 billion in revenue.

Uber's vision is to build global platform that includes ride-sharing in its current form, a continued expansion of Uber Eats and with a whole lot more.

There's Uber Freight, which connects trucking companies with businesses that ship large amounts of goods, autonomous vehicles, drone delivery and Uber Elevate aiming to address "air transportation within cities." Uber also acquired Jump Bikes, which currently has a network of e-bikes in 20 cities, and the company offers electric scooters in eight cities.

For Uber, it all adds up to an addressable market that the company says is in the many trillions of dollars. CEO Dara Khosrowshahi says at the beginning of the video for the online roadshow that the company's "mission is to ignite opportunity by setting the world in motion" and that it's "changing the way people and things move from point A to point B."

Nelson Chai, Uber's finance chief, follows by telling investors that the company is "setting the foundation for attractive long-term margins."

But it's an ambitious plan that requires decades — not years — of investment and far more capital than the $9 billion or so the company is seeking to raise in its IPO. The bet for a public investor is that eventually Uber's experimental projects turn into real businesses and the company will be far enough ahead of any potential competition to have pricing power.

"With Uber, you have the potential to create an ecosystem premium," said Eric Barden, president of Barden Capital in Austin, Texas. "If that's the case, you can be more constructive about future profitability."

Barden has no plans to invest in Uber, because he sees too many variables and risks to that kind of valuation. But he also recognizes that the public market investing landscape has changed in recent years to wildly favor growth investors and that a cash-burning machine like Uber can't be dismissed.

Source: CNBC

Amazon and Netflix are both profitable but just barely. Amazon's net profit margin of 4.3% last year ranked 98th amount the 110 most valuable companies, and Netflix's 7.7% margin was 86th.

Yet, Amazon is up 542% in the past five years, and Netflix has gained 717%. The S&P 500, meanwhile, has climbed just 58% over that stretch.

"Old valuation metrics aren't always applicable anymore," said Barden, who's an investor in both Amazon and Netflix. "It's hard to make money playing the undervaluation arbitrage."

Subscribe to CNBC on YouTube.

Let's block ads! (Why?)

https://www.cnbc.com/2019/04/27/uber-one-of-only-3-unprofitable-companies-worth-more-than-50-billion.html

2019-04-27 16:38:09Z
52780278331384

Stocks To Watch: Eyes On Apple, Uber, F8 And Avengers - Seeking Alpha

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Stocks To Watch: Eyes On Apple, Uber, F8 And Avengers  Seeking Alpha

Welcome to Seeking Alpha's Stocks to Watch - a preview of key events scheduled for the next week. Follow this account and turn the e-mail alert on to receive th.

https://seekingalpha.com/article/4257405-stocks-watch-eyes-apple-uber-f8-avengers

2019-04-27 13:12:00Z
CAIiEJ-MArOQ8OZ5gXSMYcXShNgqFQgEKg0IACoGCAowkqEGMJBZMPCxAw

Here's who stands to get rich from Uber's IPO - CNBC

Uber seeks to raise about $9 billion in cash in its initial public offering next month when it is expected to debut on the New York Stock Exchange under the symbol "UBER."

The company plans to offer 180 million shares at $44 to $50 per share, according to an updated filing released Friday morning, valuing the company between $80.53 billion and $91.51 billion on a fully diluted basis. The valuation is well below earlier reports that suggested Uber could be valued as high as $120 billion. At the low end of its price range, Uber's market cap would be $73.7 billion, which would even fall below its last private valuation of about $76 billion.

Even at the lower end of its pricing, Uber will still be the largest tech IPO to debut this year. The company may have scaled back expectations after seeing excitement around its rival Lyft's stock quickly fizzle out. The stock, which has a market cap of about $16 billion, is down more than 27% for the quarter since debuting in late March.

Still, Uber's IPO is set to make its top shareholders worth billions. Assuming Uber prices at $47 per share, the midpoint of its stated range, SoftBank stands to gain the most from the IPO. Based on its post-IPO share count in the filing, the firm would earn more than $10 billion in the offering. Even Uber's ousted former CEO and co-founder Travis Kalanick stands to gain $5.3 billion in the IPO, based on the same assumptions. His co-founder, Garrett Camp, stands to gain about $3.7 billion through LLCs he manages, under these assumptions.

Here's where each major shareholder will stand after the public offering, based on their post-IPO share counts and assuming Uber prices at the midpoint of its stated range at $47 per share:

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Watch: Uber anticipates IPO price between $44-50 per share

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https://www.cnbc.com/2019/04/26/uber-ipo-the-largest-shareholders.html

2019-04-26 18:10:36Z
52780277031922

Ford under criminal investigation for emissions testing problems - The Verge

Ford Motor Company admitted in a financial filing on Friday that it’s under investigation by the US Department of Justice over its internal emissions testing practices. The investigation is still in the “preliminary stages,” according to the automaker.

Notably, Ford says the investigation has nothing to do with the use of “defeat devices,” or software meant to deceive regulators, which was the issue at the center of Volkswagen’s Dieselgate scandal.

Ford announced in February that it had launched an investigation into its own emissions testing practices after employees raised red flags over potential consistency problems. Those employees discovered Ford may have been miscalculating “road load,” which is a measurement of the forces — like aerodynamic drag or tire resistance — on a car when it’s traveling at a constant speed on smooth, flat ground. (Coming up with a lower road load figure in the lab versus in the real world, for example, could lead an automaker to believe its cars were getting better fuel economy and therefore emitting less pollution.)

The company said it hired law firm Sidley Austin to perform the investigation, and alerted the Environmental Protection Agency. Ford said Friday that it’s also now working with the California Air Resources Board to fix whatever problems might exist.

“The Department of Justice contacted us earlier this month to let us know that they had opened a criminal investigation,” the company said Friday in a statement to The Verge. “Ford is fully cooperating with the government, and we’ll keep them posted on what we’re finding through our investigation and technical review.”

Both Daimler (the parent company of Mercedes-Benz) and Fiat Chrysler Automobiles are also reportedly under criminal investigation regarding emissions, though like Volkswagen, they allegedly did use defeat devices to make some diesel cars appear cleaner to regulators. Daimler and Fiat Chrysler have faced civil charges, too. In January, Fiat Chrysler settled a civil case with the US Department of Justice for $800 million. The company also recalled 862,000 cars in March. Meanwhile, a class-action lawsuit against Daimler in the US recently got the green light to move ahead in a New Jersey court.

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https://www.theverge.com/2019/4/26/18517991/ford-criminal-investigation-emissions-testing-problems-dieselgate

2019-04-26 17:26:50Z
52780277765177

US economy posts strong first quarter, but consumer spending slows - CNN

But digging into the details of the report reveals that weakness remains in the American economy.

The Bureau of Economic Analysis reported that gross domestic product grew at an annual rate of 3.2%, substantially above the projected 2.1%, buoyed by stronger state and local government spending, lower imports and business inventories.

The rate is a first estimate, and it may be revised as more data comes in over the next few weeks. It would have been even stronger, the BEA concluded, without the government shutdown — which subtracted 0.3 percentage points from growth in the first quarter rate. Federal spending was flat, since a rise in military spending was offset by a decline in non-defense spending.

The contribution from state and local government spending came largely as a result of highway and road construction, which localities have taken on while waiting for an infrastructure package from the federal government.

Underlying components in the report, however, suggest a broadly anticipated slowdown is still underway.

Growth was driven in part by higher inventories, especially in the manufacturing industry, which can indicate that businesses are stockpiling goods rather than selling them. Higher inventories can often foreshadow slower growth in the next quarter. Domestic private sales, which subtract out imports and exports as well as government spending, decelerated to half the rate of the previous quarter — the smallest gain in three years.

Imports collapsed, in part because businesses had rushed to bring in goods from overseas in advance of the Trump administration's tariffs last year. "With stock rooms and backlots now filling up, businesses saw no reason to buy more," wrote Bernard Baumohl, chief global economist with the Economic Outlook Group. "Worse, many companies now fear it will take far longer to unload all this inventory, given the apparent underlying weakness in consumer and business demand.

Meanwhile, consumer spending slowed, in part due to weak sales of goods, in particular light trucks. Business investment also slowed from the previous quarter, with agricultural machinery and office furniture posting the largest declines. The biggest boost for business investment came from intellectual property products. Exports are expected to slow, facing headwinds from a strengthening dollar.

"Taking out the oversized boosts from net trade, inventories and highways investment, which will all be reversed in the coming quarters, growth was only around 1%," wrote Paul Ashworth, chief US economist with the research firm Capital Economics. "Under those circumstances, we continue to expect that overall growth will slow this year, forcing the Fed to begin cutting interest rates before year-end."

Forecasters are already tamping down their expectations. Morgan Stanley's economics team revised their second quarter estimate to 1.1%, for example, citing the buildup in inventories. The Conference Board is slightly more optimistic, projecting 2.5% growth next quarter, but they also forecast a slowdown to 2.3% for the second half of the year.

One looming question: Will these surprising numbers change the Federal Reserve's stated plans to hold off on interest rate hikes for the remainder of the year? Not if they look at the underlying numbers, writes Joseph Brusuelas, chief economist with the accounting firm RSM US. Inflation is well below the Fed's 2% target. Core personal consumption expenditures — a key metric that strips out volatile food and energy prices — rose only 1.3% year-over-year in the first quarter.

"The Federal Reserve will look right past the 3.2% quarterly growth estimate and focus on the composition of growth, which points to a slowing trend amid softening inflation," Brusuelas wrote. "This data reinforces the prudent pause the Fed is engaged in, and forward-looking investors and chief financial officers should expect no rate hike or rate cut until 2021."

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https://www.cnn.com/2019/04/26/economy/us-gdp-report-q1/index.html

2019-04-26 15:47:00Z
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