Writing in New York Magazine, Naked Capitalism's Yves Smith draws on Hubert Horan's outstanding series on the underlying economics of Uber to describe why the company's IPO will be a terrible bet for the investors who buy into it.
It's only been a year since Softbank offered to buy out shareholders on a valuation of $48B (and had more takers than they were prepared to buy from!); and now Uber is hoping to float on a valuation of $120B, asking suckers to pay more than double what the company's top execs were willing to sell their shares for a year ago.
Uber claims it's a tech company and can benefit from the economics of scale that tech companies enjoy. But it's not. It's "a taxi company with an app attached." Uber's spent billions of its investors' cash subsidizing rides in a largely successful bid to kill local taxi companies, but even if every other cab company goes out of business, Uber won't be able to jack up the prices, because starting another Uber to compete with it just isn't that hard.
Uber has disadvantages of scale. Beyond a certain critical threshold, adding drivers to Uber's pool of employees (who it claims are not employees) just lowers everyone's wages, and individual drivers spend much more maintaining their cars than yellow cab companies do maintaining their fleets.
Uber's data-richness doesn't confer much of an advantage, either: no amount of data will change the fact that commuters mostly go in one direction in the morning and the other direction at night, leaving drivers with empty cars half the time (it's even worse with airport runs). Read the rest
