Caviar Sale Should Make Uber Stock Owners Nervous

In all of the news from last week, you may have missed one interesting (and worrying) tibit from Square’s sale of Caviar. Senior RSG contributor John Ince breaks down what Caviar’s sale means for Uber stock investors, plus more ridesharing news, below.

Uber lost over $5 billion in one quarter, but don’t worry, it gets worse [The Verge]

Sum and Substance: Uber just reported its second quarterly earnings ever as a public company, and hoo boy! That’s a lot of red ink! The ride-hailing giant reported losing a whopping $5.2 billion in the last three months. No, there isn’t dirt on your screen. That’s billion with a “b.”

Lyft, which reported its earnings on Wednesday, fared better but still posted a loss of $644 million during the quarter. The numbers for both companies look a lot better when adjusted for things like amortization of intangible assets and stock-based compensation for employees post-IPO…

But analysts on Wall Street expected these losses, and so we’re supposed to shrug and say “no big whoop.” “It’s a routine cost for newly public companies—though Uber’s is much larger due to the company’s size—and investors are likely to forgive it as a one-off,” writes Eric Newcomer in Bloomberg.

Indeed, Uber’s stock price was up most of the day on Thursday, thanks to Lyft’s expectation-beating earnings report: $867 million in revenue, up 72 percent from the year before. (Analysts had expected 60 percent revenue growth.) Uber’s revenue is also growing, but at a slower rate than Lyft — $3.1 billion for the quarter, up 14 percent from last year…

Khosrowshahi often likes to talk about abstract concepts, like a $12 trillion “total addressable market” (TAM) that Uber has only just begun to penetrate. That includes things like food delivery, personal mobility, and freight shipping. For reference, the World Bank estimates global GDP was around $80 trillion in 2017. Uber is saying it can capture 15 percent of all global economic activity. That is sure to excite investors, but it could come at a real cost to the quality of life for the rest of us.

Look out the window. If you live in a big city, you can probably see a lot of cars driving for Uber and Lyft out there. The vast majority are 2,000- to 3,000-pound vehicles carrying one to two passengers at most. Now imagine these companies growing by a factor of 10 or 20 even, as they predict they can. What does traffic look like then? What happens to our air? Our streets? This isn’t some NUMTOT-inspired aside; there is a real price associated with this “growth at all costs” mantra from Uber and Lyft. …

My Take:  Sorry is it seems like we’re dwelling on the numbers too much, but the numbers are so far out that this is getting surreal. Don’t believe me? Check out this article,Uber’s Q2 losses were bigger than total 2018 losses for all but three S&P 500 companies or read our recent deep dive into the Uber/Lyft earnings announcement. Uber CEO Dara Khosrowshahi is a savvy veteran of Wall Street, and he’s probably throwing everything but the kitchen sink into this quarters earnings just to get it out of the way so subsequent quarters will look much better by comparison. But let’s get real. So far, financially, Uber is a disaster. Higher fares anyone?

New York City extends its cap on new Uber and Lyft vehicles [The Verge]

Sum and Substance: The New York City Taxi and Limousine Commission voted Wednesday to extend its cap on the number of Uber and Lyft vehicles permitted to operate within the city. The commission also amended its rules aimed at limiting the amount of time drivers can cruise without passengers in Manhattan below 96th Street.

The regulations come on top of new minimum wage rules enacted in February, along with a congestion charge for all for-hire vehicles and yellow taxis.

The vote by the TLC wasn’t a surprise; New York City Mayor Bill de Blasio said two months ago he wanted the cap extended for another year to prevent app companies from “taking advantage of hardworking drivers, choking our streets with congestion, and driving workers into poverty.”

As such, Uber and Lyft tried to downplay its significance while also signaling their disappointment with how the government in America’s biggest city treats them. “The TLC continually attempts to shrink New Yorkers’ access to affordable and reliable transportation,” a Lyft spokesperson said. “There is no reason these rules needed to be rushed through on such an accelerated time frame, especially given strong opposition from members of City Council and communities across New York. We will never stop working to find better solutions for riders and drivers.”

Driver groups are split on the decision. The New York Taxi Workers Alliance hailed the vote as a win, while the Independent Drivers Guild said it was “disappointing.”

My Take:  New York City traffic has always been a mess. With Uber and Lyft vehicles clogging the streets, it’s gotten a lot messier. I suspect no amount of fiddling with the rules and regulations will ever alleviate the situation, but Uber and Lyft’s response here is troubling, especially given recent research (below) that provides clear evidence the TNCs are exacerbating traffic woes, not just in NYC but almost everywhere they operate.

Uber and Lyft have admitted to making traffic worse in some US cities according to a new report sponsored by both companies. [Vox]

Sum and Substance: Uber and Lyft contribute to worsening traffic, the companies revealed in a co-funded study, and riders may soon see an uptick in fares as an indirect result.

The study, released by Uber and Lyft last week, found that their cars contributed to increased overall congestion in six major cities surveyed: Boston, San Francisco, DC, Chicago, Los Angeles, and Seattle. Handled by transportation consultancy group Fehr & Peers, Uber and Lyft’s report analyzed data from the ride-share behemoths, alongside data from federal, state, and local agencies…

As per Fehr & Peers’ report, Uber and Lyft rides account for only 1 to 3 percent of cars on the road in the cities studied. Still, says Uber’s Pangilinan, the two companies “are likely contributing to an increase in congestion.” In San Francisco, Boston, and DC, for instance, Uber and Lyft’s miles traveled is much higher, ranging from 13.4 percent (San Francisco) to 7.2 percent (DC)…

Taking ownership (at least in part) for congestion could come with an ulterior motive, however. Reports CityLab, Uber and Lyft use data on congestion to justify congestion pricing. The two companies recently introduced congestion pricing to Manhattan, a policy used in cities outside the US like London, Stockholm ,and Singapore that tacks on user fees for high-traffic areas during high-traffic times of day.

… Whether or not cities will adopt congestion pricing is another unknown to add to the list — and whether the public will support such a measure is yet one more.

My Take:  It’s unusual for a company-sponsored study to paint those who are footing the bill in an unfavorable light, but that’s exactly what happened here. Of course, Uber and Lyft are using the study to their own advantage, arguing that it provides justification for price increases.  I’m not sure the companies need a study to make that case – just look at their profit/loss statement.  The signals are clear – the days of providing subsidized fares to passengers are numbered as this past week’s earnings release will blare out for anyone who is paying attention.

Uber Stock Owners: Be Very Afraid of What Square Just Did [Investor Place]

Sum and Substance:  Last week, DoorDash, one of America’s largest food delivery companies, announced that it was buying Square’s (NYSE:SQ) food delivery business, Caviar. Incredibly, DoorDash is paying just $410 million for Caviar. This is terrible news for Uber Technologies, Inc. (NYSE:UBER) and other companies in the food delivery space.

It adds to a series of other problems Uber has been having lately. These include permit issues in London, layoffs, and a report suggesting that ride-sharing services make traffic congestion worse. There’s a lot going on with UBER stock and Uber stock price, and it’s not good news. …

If you’re tempted to dismiss the importance of this situation, think again. Caviar was supposed to be a nice opportunity for Square. Analysts had modeled Caviar and Square’s food platform as a meaningful value driver in coming years. Since announcing the Caviar sale last week, SQ stock has plummeted from $81 to just $64.

That’s because Square ended up dumping Caviar for just $410 million. That’s peanuts. In fact, it was less than 2% of Square’s market cap. Industry leader GrubHub (NASDAQ:GRUB) is valued at more than $6 billion. What can we take away from this?

Square was willing to give Caviar away for next to nothing simply to stop the bleeding. Square had previously tried to sell Caviar in 2016 but couldn’t find a buyer at an agreeable price. Reportedly Square wanted to get rid of Caviar due to its excessive losses, and apparently decided it was finally time to bite the bullet and dump the property. Square didn’t report Caviar’s financials separately, so we don’t know just how bad the overall financial performance was.

My Take:  Uber, like most companies in the tech world, typically emphasizes growth figures over profitability, and that’s what they’ve done with Uber Eats. I can’t find profitability figures for their food delivery subsidiary, though they may be buried in there someplace. If you can find them, please let us know.

In the absence of profit figures, we can only use figures like the ones used in this fire sale, and if they’re any guide, the prospects for food delivery as a viable profit center aren’t much better than ridesharing.  Perhaps that’s why the figures are so hard to come by.

Lyft Blocking Third-Party Apps [LinkedIn]

Sum and Substance: Over the past few months, Lyft has been actively blocking Mystro – an app that we’re a big fan of (I’m even an advisor to Mystro) and many drivers have emailed us to express their frustrations.

Switching apps like Mystro let drivers drive for both Uber and Lyft automatically, and these third-party apps let drivers set terms for preference as far as which app they’d prefer to accept rides from. But one thing we’ve been surprised by is how many drivers like using Mystro purely for the safety aspect, since without it, you have to manually accept/reject trips that could come in while driving 45 mph down the street.

Here’s what readers are saying:

Manny, an Uber and Lyft driver, expressed concerns about driving and declining rides. Without Mystro to make those automatic declines (or accepts), driving becomes more dangerous:

“I have been opening usual two apps (Uber and Lyft) at the same time. But recently, I noticed some weird things using these two apps at the same time. I have to hit the CP screen hard several times just to get that request… I’ve almost run a red light because I have to concentrate on the apps in my effort to get that precious request…”

My Take:  The conventional wisdom is that Lyft is a kinder, gentler and smaller version of Uber.  But the reality doesn’t always align with the conventional wisdom. Case in point: RSG research suggests Lyft is intentionally and surreptitiously sabotaging the popular app, Mystro, which arguably enables drivers to maximize efficiency and safety on the job.  Who could be opposed to that?  Lyft apparently, because they feel it’s taking drivers from their app. So much for the nice guy image.

Readers, what do you think about this week’s round up?

-John @ RSG