Weekly Brief: Uber’s IPO Highlights Concerns Over Driverless Tech Prospects

Commentary By Andrew Tolve

---

13th May 2019

It was meant to be a foregone conclusion the way last week would go.

Uber, the father of the gig economy, the pioneer of ride-sharing and the most famous in a line-up of Silicon Valley unicorns set to go public this year, would skyrocket in value the moment it started trading on the stock exchange. Many analysts projected a valuation north of $100Bn. The most sanguine of them thought $120Bn was attainable. That would have put Uber in rarified air and stamped its IPO as a seminal moment in tech history.

As for how things really went… let’s just say it wasn’t the Friday Uber had hoped for. The company debuted at a valuation of $82.4Bn, well below analyst expectations, and then fell from there, ending up down 7.6% for the day with its stock trading at $41.57 a share. Uber’s rival Lyft, by comparison, exceeded analyst expectations when it went public for $24Bn back in April and its stocks popped on their first day of trading, climbing nearly 21% by the time of the first trade and ending 9% up on the day. Lyft’s IPO was a confetti party. Uber’s felt like a storm cloud had cracked and split open atop the ride-sharing giant’s head.

What happened? For one thing, Lyft’s fun and Uber’s gloom weren’t independent of each other. Since Lyft has gone public, its stock performance has cooled dramatically. Last week its first quarter earnings report revealed losses of $1.14Bn between January and April. Granted, some of those losses were owing to IPO-related expenses and the company’s revenues actually exceeded expectations in the first quarter – the company brought in $776M. Still, do the arithmetic and Lyft lost about a quarter billion bucks in its first quarter as a public company. Its stocks continued to slide last week. That reality shaped the landscape that Uber debuted into.

So, too, did the growing anger and frustration of Lyft and Uber drivers. Five years ago drivers for both companies made more than $2 a mile. Now, they get less than $1 a mile. Uber and Lyft have suggested that the squeeze on their drivers will continue as both companies grasp for some way to become profitable. With that squeeze, it will become harder and harder for drivers to earn a living wage. No surprise, then, that thousands of drivers took the occasion of Uber’s IPO to protest on streets around the US, from San Francisco to New York City, where drivers stood out front of the bull statue on Wall Street holding signs that read: “Invest in our lives – not their stocks.”

Investors aren’t blind to this sort of turmoil and it showed on Friday. The question becomes, is Uber a good investment anyway? Which is another way of asking, will the ride-sharing economy ever become profitable? The answer to both of the questions, increasingly, seems to weigh on yet another question: will robo-taxis ever come true? Because if they will, if cars will be able to zoom around city streets with nobody behind the wheel, then Uber and Lyft become potentially hugely profitable businesses. However, if they don’t come true, or if they only sort of do with having to always require a safety engineer onboard or never being able to handle anything beyond geofenced and predictable routes, then the question mark remains.

No wonder Uber has invested $1Bn into self-driving tech since 2015. Its autonomous vehicle division seemed to be a frontrunner in the space until one of its pilot vehicles struck and killed a pedestrian in Tempe, Arizona, back in March 2018. Since then the division has been halted, put on life support and now brought back to life in Pittsburgh. One could argue that even if Uber never develops adequate self-driving tech on its own, competitors will, and the ride-sharing giant will be able to pay for the prize. Then again, who’s to say competitors will figure this out either? Waymo is the industry leader by a mile right now and its “cutting-edge” robo-taxi service in Arizona is anything but cutting-edge. It’s painfully slow at times and only travels in preset geographies, making it impractical to use unless Waymo is begging/paying you to.

Of course, self-driving tech will continue to improve, likely to a degree that one day it powers the likes of Lyft and Uber to mega profitability but it’s not a foregone conclusion. Nothing in life is, just ask Uber after its IPO last Friday.