Is it too soon for an Uber IPO?
Human beards were found to have a lot more germs crawling around in them than dogs have in their fur. Indeed 35 per cent of beards sampled were harbouring bacteria that posed a human health threat.
Aotearoa is experiencing a facial hair invasion, spearheaded by the three prongs of the hipster apocalypse.
If you’ve bought a draft craft beer, ordered a coffee or been to a barbers in the past week; the chances are that you’ve dealt with a bearded person.
From being an embarrassing throw back to the 70s, beards have become the height of sartorial elegance for blokes. And it’s not that untamed ‘‘alaskan whaler’’ look.
Rather it’s an immaculately presented facial bouffant arrangement; conditioned and waxed.
Mind you that doesn’t make it healthy. A study out last week found that every beard was crawling with germs. What’s more almost half of those beard germs were hazardous to human health.
Human beards were found to have a lot more germs crawling around in them than dogs have in their fur. Indeed 35 per cent of beards sampled were harbouring bacteria that posed a human health threat.
The Swiss study follows an experiment in the United States, where Albuquerque microbiologist John Golobic found beards housing bacteria that were comparable to those found in a toilet.
All a bit shocking, particularly to a bearded old fellow like me. But does that mean all the hipsters are
going to reach for their shaver. Not on your life.
Part of the human condition is ‘‘feeling the fear and doing it anyway’’. Or more simply put, we are happy to make decisions made on emotions rather than facts. And this includes making decisions about where to put our money.
Such a state of affairs may well be behind the rapid rise in unprofitable companies going public over recent years.
A study by University of Florida professor and IPO specialist Jay Ritter, found that 81 per cent of American companies that were floated in 2018 were unprofitable in the year leading up to their public listings.
Coincidentally (or not) that’s exactly the same rate of unprofitable companies listing on the sharemarket as during the height of the dot-com bubble explosion in 2000. It’s also twice the statistical average of the last 40 years.
Against this rather troubling contextual scan, two of the largest non-profitable companies in the world are listing this year. Ride sharing companies Uber and Lyft – two brands also popular with hipsters.
In the case of Lyft the company lost almost US$1 billion last year. Another way of looking at it is they lost about a buck and a half for every ride.
Uber’s numbers are harder to drill into – due to the conflating income of Uber Eats and Uber Freight and the sale of offshore business last year – but for the period from 2014 to 2017 it was in the red every year, to the tune of US$6.8b in losses. In 2018 it turned a profit due to the sale of its South East Asian business, but it’s picked to return to unprofitability this year.
When Uber filed its listing papers last week it sought to defend this history of negative profitability by noting that Amazon failed to make profit for its first 17 quarters (4.25 years).
This is absolutely true. However, the total scale of the loss across those 17 quarters was US$2.8b – which is roughly the same as what Uber lost across one year in 2015. Meanwhile, these days Amazon is posting yearly profits of over US$10b.
The Uber IPO will reportedly value the ridesharing business at US$120b which is close to what Paypal floated at back in 2015. Now that’s a long way away from the trillion dollars Apple is valued at or the US$800b of Microsoft, but it’s within eyesight.
But there’s a fundamental difference here. And it’s about the length of the pre-IPO period and what the implications are for investors.
Traditionally companies have gone public relatively early in their timeframe to get access to growth capital. Apple debuted on the sharemarket with a valuation of just under US$100 million. Microsoft floated at US$62m.
What that means is that ‘‘normal’’ investors like you and me were able to benefit from the value creation path they forged. In the case of Apple and Microsoft this saw investors benefit from multiple rights issues and epic share price growth.
If you’d invested $220 in Apple shares in the IPO today they would be worth $112,000 today – a 500x return.
Today’s tech companies no longer have to race to IPO. They have access to plenty of funds via venture capital, private equity firms and generous terms sheets. Today IPO is something you do late rather than early.
So while plenty will jump at the chance to buy Uber stock, it will be an emotional pull rather than a rational one. Like their bearded hipster friends, they will feel the fear and do it anyway.
And they may even have a few share price wins. But as veteran US politician Jack Kemp once noted ‘‘Winning is like shaving, you need to do it consistently every day or you wind up looking like a bum’’.