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Harry here. In today’s round up, senior RSG contributor John Ince covers how scandals have impacted Uber’s value, continuing litigation over Uber’s driverless car technology, and new ways for passengers to rate drivers.
Scandals may have knocked $10 billion off Uber’s value, a report says [CNBC.com]
Sum and Substance: Share prices of Uber’s private stock have dropped about 15 percent to the mid-to-high $30s range amid a slew of bad press, The Information reported Tuesday. The leg downward would value the privately held company at around $50 billion, down from close to $60 billion at the beginning of this year, an unnamed broker told The Information. Then, shares were in the $40 per share range, the broker said, according to the website.
Because Uber is not traded on public exchanges, it is difficult to gauge how many shares are changing hands, though another broker told The Information that transaction volumes are on the rise. Equidate, an online trading platform for brokers that deal with large private technology companies, lists Uber’s valuation at nearly $70 billion as of February.
Uber declined to comment to CNBC . Uber has been notoriously protective of its shares — even big investors aren’t supposed to sell them, investor Bill Maris told TechCrunch last year. Short of selling their shares back to the company itself, many start-ups offer few ways for employees to cash out. That system creates what venture capitalist Scott Kupor calls a “Faustian bargain” for many start-up employees, and it could conceivably tempt cash-poor workers to skirt the rules and sell cheap. Still, Uber has suffered a litany of negative headlines that would have arguably dinged a publicly traded company — including an investigation into sexism allegations, a lawsuit over allegedly stolen intellectual property, and accusations of evading authorities and dodging Apple’s rules.
My Take: I’m betting this really is the key question in the minds of Uber investors and executives these days – how much of a hit has Uber’s stock price taken by the recent slew of bad news? For most early investors, Uber is still a home run. They put money in at a fraction of what their shares are worth now. A dip of 20% of so, which this article suggests is the case, isn’t all that bad, if – and this is a big if – the company can recover, find a path to profitability and find an exit. Non-employee investors have the option of trading in secondary markets, but those transactions are private as Uber’s value right now is a topic of open debate.
Uber has placed strict rules on employees regarding sales of their stock, with good reason. The U.S. Securities Exchange Act of 1934, section 12(g), used to limit a privately held company to under 500 shareholders. But as of May 24, 2016, with the release of new regs on the Jobs Act, those limits were changed to either 2,000 persons, or 500 persons who are not accredited investors.
Maybe some of our legal experts can weigh in on how this might affect existing Uber shareholder who may want to sell their shares. My understanding is that exceeding this limit would trigger all kinds of reporting requirements that TK has tried to avoid. As long as Uber is private, nobody but those in the inner sanctum really knows what the numbers look like, and that’s just the way TK wants it.
A subplot here – for some time there’s been confusion about the issue of who (if anybody) is Uber’s CFO. See: Business Insider for a more detailed look at this mystery.
Uber and Waymo Duel at Key Hearing Over Driverless Car Technology [The New York Times]
Sum and Substance: In the fight over the future of self-driving vehicles, a bare-knuckled brawl between Uber and Waymo is coming to a head. That was clear in a federal courthouse in San Francisco on Wednesday as the two companies clashed at a crucial hearing in a case that could halt the progress of Uber’s autonomous-vehicle research efforts.
The hearing was expected to be the final court session before a federal judge decides whether to temporarily shut down Uber’s work on self-driving cars. At the center of the dispute are allegations by Waymo, the self-driving car unit spun off by Google’s parent company, that Uber was using stolen trade secrets to develop autonomous vehicles. The thief, Waymo maintains, is Anthony Levandowski, a former top Google engineer whose start-up was acquired by Uber last year to work on self-driving technology. Waymo has accused Mr. Levandowski of illegally downloading 14,000 documents from Google and then applying those stolen secrets at Uber.
On Wednesday, lawyers for Waymo argued that Mr. Levandowski had reached an understanding with Uber before he left Google. To keep that agreement secret from Google, the Waymo lawyers said, Mr. Levandowski and Uber needed some cover, so they hatched a plan for Mr. Levandowski to create a self-driving-car start-up named Otto, which Uber would then acquire. “In fact, there was this clandestine plan all along that Uber and Mr. Levandowski had a deal,” Charles Verhoeven, a lawyer for Waymo, said. Uber, which has denied stealing Waymo’s technology, said there was no evidence that any stolen Waymo files had touched Uber’s servers.
“We’ve interviewed more than 85 Uber employees, and more than 40 attorneys spent more than 6,000 hours reviewing documents, including over weekends,” Arturo Gonzalez, a lawyer for Uber, said. “After reviewing more than 300,000 documents, we’ve only found one Google email in the files.” The case will be decided by Judge William Alsup of Federal District Court, who is expected to issue a ruling within the week. Waymo has asked for a temporary injunction blocking Uber’s self-driving car efforts; such an order would affect hundreds of Uber’s highly skilled engineers. At stake is what Uber and Waymo both believe could be a multibillion-dollar opportunity in the transportation industry in which autonomous cars move people around without the need or expense of human drivers.
https://www.nytimes.com/2017/05/03/technology/uber-waymo-court-case-self-driving-cars-technology.html
My Take: As this titanic struggle plays itself out in the courts, a treasure trove of salacious details are emerging. You can read all about it here – 11 juicy details revealed at the Waymo v. Uber hearing.
Judge Alsup’s ruling could come an any moment. When it comes, it could shape the contours of the driverless car industry for years to come. An adverse ruling for Uber – conceivably an injunction – would be a major setback to Uber’s ambitions for driverless cars. Uber certainly appears to have taken a short cut to technological development here.
There’s little doubt that Anthony Levandowski downloaded key documents – 14,000 of them – before he left the employ of Waymo. But the sticking point in court is that Google / Waymo / Alphabet has scant little evidence that those documents ended up directly in the hands of Uber. Instead, they went to Otto – the corporation set up by Levandowski.
Also in dispute is when exactly Uber agreed to pay Levandowski the $250 million to purchase Otto. The whole thing just does not smell right, but proving it all in a court of law is an entirely different matter. Judge Alsup may have tipped his hand when he said to Waymo’s lawyers, in court, “I’ve already given you lots of time for discovery, and you don’t seem to have a smoking gun.”
If Uber prevails here, it won’t be the end of this drama. There will be many more chapters, but at least it will keep Uber in the game. Either way, I’ve got to hand it to their lawyers – they’re very good. In the modern day world of Silicon Valley, having good lawyers is almost as good as having good technology.
Uber to show passengers the secret ratings drivers give them in bid to improve behaviour [Daily Mail UK]
Sum and Substance: In a new update rolled out today, the firm has revealed ratings will now be displayed right under your name. An additional change also aims to make the rating system fairer to drivers, by giving Pool riders feedback options to describe ‘what went wrong’ in their trip, including co-rider behaviour.
In any Pool trips rated less than 5 stars, the rider will be shown options to further describe the experience. This includes poor route, too many pickups, co-rider behaviour, navigation, driving, or ‘other’. Uber also revealed riders’ ratings will now be more accessible, in hopes to encourage better behaviour during their trips. Ratings will now be right under your name in the menu.
The two updates go into effect around the world today, and while they may seem minor, it could help to make the system fairer. Uber Pool trips could be ruined by an overly chatty co-rider, the firm explains, or other factors that are outside of the driver’s control.
My Take: While this recent change to the Uber app may have been designed to improve passenger behavior, I’m not entirely sure that will be the actual result. Drivers may now be reticent to give passengers a low rating for fear that passengers will retaliate with a low rating of the driver. Remember, drivers have to rate passengers right after the ride, while passengers can wait to give drivers their rating, sometimes days or weeks after the ride.
If the passenger now can see their rating on their screen and watch it plunge, they can surmise it was a particular driver. This kind of gamesmanship has unfortunately become part of the platform. I’m not sure what the solution is, but there’s something about these ratings that just doesn’t sit well with me.
Dear Uber, That Record Funding Means Didi Is Coming for You [Bloomberg]
Sum and Substance: Chinese ride-hailing giant Didi Chuxing just raised more than $5.5 billion, giving Uber Technologies Inc. Chief Executive Officer Travis Kalanick one more thing to worry about.
Didi’s record funding round is said to value the company at more than $50 billion and gives it a war chest to ramp up efforts to harness artificial intelligence, build driverless cars, and compete more aggressively in foreign markets. The cash infusion coincides with a rough period for Uber, which is facing lawsuits and an image problem, and follows a detente in China after Uber agreed to essentially cede the market to Didi in exchange for a significant stake.
“The bruising battle with Uber taught [Didi] a lot,” said William Bao Bean, a Shanghai-based partner at venture capital fund SOSV. “Now it’s battle-hardened, and can buy the best talent in the world to attempt to go big in China, and also go global.” While Didi confronts many of the same challenges bedeviling Uber—both are bleeding money and battling regulators—investors are still betting both will eventually have fleets of driverless vehicles in cities around the world. It’s a daring vision, but perhaps too good a dream to pass up.
“The biggest risk any investor faces isn’t losing money,” says Andy Mok, managing director at Red Pagoda Resources, an executive search firm in Beijing, “but missing out on the next Apple or Google.” For Didi and Uber, which offer appealing visions of a future when driverless vehicles shuttle people around cities using artificial intelligence, the technology represents a massive opportunity because of its ability to reduce costs, said Kai-Fu Lee, one of China’s most prominent venture capital investors. “Profitability is heavily dependent on the success of autonomous vehicles,” said Lee, a veteran of both Microsoft Corp. and Google. “If you look at the breakdown of the costs of either Uber or Didi, a very large part of the cost – about two thirds – is based on their drivers, on what they pay for drivers, insurance, driver acquisition.”
Didi has powerful supporters of its vision, including SoftBank Group Corp., whose founder Masayoshi Son is famous for making big bets. Almost 20 years ago he backed a small Chinese e-commerce outfit that would become Alibaba Group Holding Ltd. and deliver a profit of more than $80 billion. “SoftBank is known for making pretty risky investments — like in Alibaba and Yahoo. Sometimes they pay off very big, sometimes they don’t,” said Duncan Clark, founder and chairman at advisory firm BDA China and author of “Alibaba: The House that Jack Ma Built.” “Son tolerates very high levels of risk.”
The Didi-Uber relationship is complicated — Uber owns about 17.5 percent of Didi, making it the largest shareholder, and also allowing it to benefit from Didi’s success. But even if they no longer vie with each other in China, they both have ambitions to be big, global players and are poised to clash in other markets. Didi has expanded outside its home turf mostly by making investments or forming partnerships with ride-hailing companies such as Grab in Singapore, Ola in India and Lyft Inc. in the U.S.
My Take: $5.5 billion is a pretty nice chunk of change and it definitely ratchets up the competition a few notches. Uber’s competitive advantage in the global rideshare wars – it’s huge war chest – just became a little less advantageous. But wait – in this incestuous relationship, Uber may be a beneficiary of Didi’s fundraising coup, because remember, Uber got 17.5% of Didi as part of their agreement last year – when Uber agreed to pull out of China. That move, in and of itself, may be the saving grace for Uber. Either way, they win here.
