What happens when a disrupter goes broke? We may be about to find out. Uber (NASDAQ:UBER), which redefined the global taxi business as a private company, has lost nearly one-third its value since going public. Uber stock is not coming back soon.
Uber lost $5.24 billion, $4.71 per share, on revenue of $3.17 billion for the quarter that ended in June. Analysts expect the ride-sharing technology company to lose another 83 cents per share, over $920 million, for the September quarter, on revenue of $3.74 billion.
The balance sheet in June showed Uber with cash of $11.88 billion. In theory that’s enough to survive for almost three years, if the cash burn can be held down to expected levels.
But can it? Investors are starting to bet it can’t.
Of roughly seven million shares per day currently traded in Uber 33%, are being sold short. By way of comparison, the comparable figure for Tesla (NASDAQ:TSLA), long one of the most popular shorts on the market, is 12%.
Short interest can hold a stock’s price up because shorts are borrowing the shares they’ve sold and must at some point buy them back. Almost any sign of good news, even the absence of bad news, can trigger a “short squeeze.” The stock price rises and the loans used to sell shares get called in.
An upside surprise next month could cause a dramatic jump in Uber’s stock price. But if you’re betting on that the odds don’t look good right now.
Uber profit depends on either paying drivers less or getting more from riders and neither seems likely.
Uber faces competition with Lyft (NASDAQ:LYFT) against any price rise. Customers have learned to organize and arbitrage the services against one another.
The California legislature, meanwhile, is fighting to raise Uber’s driving costs. AB5 would reclassify drivers in that state from contractors to employees. It could be signed as early as this week.
Uber wants to be exempt. It promises an initiative campaign against the law if it’s not. But an initiative can’t happen until next year. Drivers are still classed as contractors under federal labor law but are working in other large markets, like New York and Chicago, for better conditions.
Labor peace isn’t around the corner.
Uber is fighting its problems in a 19th century way.
It already has a program to help drivers get cars, and is now interested in offering them payday loans, as Walmart (NYSE:WMT) already does. Existing payday lenders already target drivers, especially when their cars need repair.
The difference is that Walmart is loaning money to employees. Uber’s loans would be going to contractors. Critics say this could make Uber drivers into indentured servants, digital sharecroppers forced to keep working to get out of debt with interest they can’t pay back.
On top of this comes a book from New York Times reporter Mike Isaac charging that Uber’s corporate culture doomed it to failure.
Super Pumped claims Uber’s “safe rides fee” delivered nothing but cash into the company’s pocket. Isaac says Uber routinely puts female drivers in danger and covers up sexual abuse by executives.
CEO Dara Khosrowshahi, who joined from Expedia (NASDAQ:EXPE) two years ago, has been unable to lift Uber’s reputation so far.
Uber’s problems may help investors obtain better pricing on coming IPOs like WeWork and Peloton. Funds that specialize in newly-public companies have big winners like Spotify (NASDAQ:SPOT), Roku (NASDAQ:ROKU) and Beyond Meat (NASDAQ:BYND) to cover up Uber’s pain. They seem resigned to a loss on Uber.
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