I am not a big IPO fan to begin with. Usually, it’s private owners who are heavily obligated to feeding a growing negative cash flow situation who want someone to take the “hot potato” at an inflated price. They are selling the sizzle so others take the obligation off their hands at extremely high prices. Lately, it’s also selling at premium prices while the private investors still control the company's fate through voting shares.
Tomorrow is Uber's "coming out party". I can just hear those private owners licking their chops about the high prices they’re going to receive.
Lyft's earnings came out this week and they lost over $9/share for the period. It sounded to me like they goosed revenues by discounting ride fees. Since "investors" are focused on revenue growth, who cares if net income is dismally negative. If Lyft were still private, the net losses would have had to have been funded by those private owners.
The "spin" is that self-driving cars will reduce the costs in the future and the services will be wildly successful and profitable. I don't buy it.
Currently, these ride sharing services "leach" off their drivers who provide the capital equipment. Many drivers probably don't have the analytical focus to understand all the variables to determine their true earnings.
If in the future automated cars become the source of the ride sharing, the ride sharing services will have to invest a HUGE amount in capital costs to buy all those vehicles and will have to deal with the numerous costs of the capital equipment. These costs include capital expenditures, maintenance, insurance, cleaning, etc. Next, the economics of the automated cars will likely be very competitive. Some people will have their own self-driving car. For others, there will be many choices for self-driving cars which will drive down the revenue prices.
I don't buy the value of these IPO offerings. The pitch may sound really good, but if a thorough economic analysis were done, I believe the returns will be marginal or negative.
Just because you like the service a company provides doesn’t mean that the company is a great investment.
