A Blog by Jonathan Low


May 9, 2019

Does Uber's IPO Show That Silicon Valley Is Running Out of Ideas?

Do a spate of profitless IPOs - especially of the unicorn scale - suggest that Silicon Valley is once again flogging concepts without a future - because they have no other alternatives for the moment?

And at a broader level, does this suggest that China, with its tech industrial policy, legions of tech graduates and even intellectual capital theft reminiscent of what the US did to Great Britain in the 19th Century -  is where the future of real innovation is shifting? JL

Michael Spencer reports in Medium:

Profitless IPOs are now back up at the same level they were right before the 2000 crash. Silicon Valley is spinning out these companies saying they may never be profitable and Wall Street will adjust valuations accordingly. From Facebook to Google to moral decisions that even outrage employees of Tech companies, it marks the beginning of the end for Silicon Valley being the epi-center of global innovation. These are signals of an empire in decline. Uber is a microcosm, In the 2030s China will disrupt Silicon Valley as the leader of innovation. This is already underway. Uber might be the last pretender that American bro-culture wins.
Uber only lost $1.8 Billion and it may never be profitable. Uber had 22 rounds of funding, raising more than $20 Billion privately.
Uber has a diversified business model entrenched in massive competition. They over-expanded globally only to be pushed back into the U.S. where Lyft has been rising in recent times going IPO a few weeks before them.
Uber was branded as this disruptive Titan of Silicon Valley, and sure Travis Kalanick will be worth $8.6 Billion after its IPO, but it’s only shown the Grab and Didi’s of the world are as good, and as unprofitable.
Silicon Valley is spinning out these companies are who basically saying they may never be profitable and Wall Street will adjust their valuations accordingly.
Uber relies heavily on Google mapping technology. It even pays Google $58 million over 3 years for maps services. 2018 wasn’t a revelation, Uber posted net income of $997 million in 2018, but an adjusted EBITDA loss of $1.85 billion. Without massive investment from the likes of Softbank’s Vision Fund I’m not sure what would have happend to Uber.
$24 Billion of private funding and you decide to go IPO. Something is not right with this picture. The #DeleteUber movement led to hundreds of thousands of users deleting the app. And we are billing Uber as the next champion of disruptive technology? This trend of mega companies like Netflix, WeWork and Uber are setting a dangerous precedent, companies that operate in the red as if that was the new normal. Hey guys, you aren’t Amazon!

Uber is Like a Wall-Street Hack

Let’s just be really honest here. Uber’s disclosure that it may never be profitable coincides with the return of a danger-signal from the dot-com crash. Silicon Valley regularly deceives Wall Street with business models that are destined to fail, companies that won’t even last to a 20-year lifetime for their business. By and large in 2019, we know self-driving tech will scale much slower than many analysts and technologists assumed. Just ask the engineers at Waymo.
For Uber the competition with Lyft has cannibalize their profitability, while major players globally have won local marketshare. They pretend they are worth $100 billion, but how low do you suppose their stock along with Lyft will go due to being so incredibly unprofitable?
Ride-sharing isn’t profitable until robo-taxis are safe to go mainstream. That doesn’t happen in the 2020s. Uber filed to go public Thursday, publishing a 300-page prospectus for would-be investors.But their own document contains a standard acknowledgement: Uber says it may never be profitable.
A large share of today’s companies are going public without any profits to speak of, with tech firms leading the charge. It speaks of Silicon Valley’s growth-at-all-costs mantra that is turning the world into the kind of capitalism that eats itself. A kind of world where Saudi Arabia and Japan fuels Uber, meaning it’s no longer really an American company.
2019 is supposed to be one of the best IPO Unicorn years ever, but the biggest movers are prime examples of how Silicon Valley has declined. Declined compared to China, declined compared to makers in Israel, declined compared to how the rest of the world is catching up.
Uber’s grandiose scale is so deceptive it reminds me of a chilling reminder of the dot-com crash, which claimed several high-profile companies and put 200,000 tech workers out of a job. Uber is a boom or bust high-risk stake in the heart of Silicon Valley and if I was a serious investor, I’d be putting up a red flag of buyer-beware.
I’m not making this stuff up. Profitless IPOs are now back up at the same level they were right before the 2000 crash, according to data from University of Florida finance professor Jay Ritter.
Uber released its long-awaited IPO prospectus. Go ahead and read it, draw your own conclusions. There aren’t many companies so illustrative of the problems of bro-culture and #MeToo violations like Uber, let’s not be blind to its brand’s history.
Complex by the way, is not good. Silicon Valley is still playing its old games. Uber and Lyft aren’t as incredible as they may appear. Transportation is a terrible business and it will become more regulated. Silicon Valley has duped regulation in so many verticals it’s downright scary to what the world of Tech lobbying has become.
Maintaining drivers as contractors is pretty dysfunctional. Your lack of profitability in Uber could get a lot worse. Lawsuits and bro-culture and the toxic narrative of Uber have made a farce of the gig-economy, once touted as being a good thing.
But also within the pages of the prospectus was an acknowledgement that laypersons might find startling: Uber says it may never be profitable. Snap INC famously said that and had one of the worst IPOs in recent memory. I will personally never use Uber as my go-to ride-sharing service. It’s too dark, it’s too Silicon Valley player like.
Let’s be realistic, we are talking about a company, a ride-hailing company that touts itself as being “disruptive”, that posted a $3 billion operating loss last year! It demonstrates Silicon Valley’s hacking of capitalism is extending to the absurd.

Uber’s High-Risk Business is Under Risk

So, where do you want to start?
  • Huge spending on things like drivers
  • “Unproven” revenue lines
  • Danger of unrealized cost savings with acquisitions like Careem
  • Uber Eats makes losses on partnerships (e.g. McDonald’s)
  • Driver dissatisfaction is a core feature of Uber’s culture
  • Treating Drivers as contract workers is highly unethical
  • Uber’s own focus on aggressive growth and intense competition has proven back-bite (Lyft is seen as a more trustworthy brand by young people).
  • Uber’s lack of transparency internally and deceptive practices means it been liable to lawsuits and will be liable to regulatory compliance that could damage its business model irrecoverably.
I’m as excited as the next guy about huge IPOs and the potential of Lyft and Uber, but I also in mind hold them accountable to a laundry list of mistakes and failures that won’t go away. Moreover I see Uber as emblematic of all that is wrong with Silicon Valley’s bull-dozing approach to innovation.
It also shows a certain desperation of Silicon Valley to maintain its’ global control. I think in the 2020s and moreover in the 2030s China will basically disrupt Silicon Valley as the leader of innovation. This is already in 2019 clearly underway. Uber might be one of the last pretenders that American bro-culture wins in the new world. This ain’t the global capitalism your Dad taught you about.

Uber’s Reputation Never Really Recovered

Susan Fowler changed everything about how I saw Uber as a brand, probablay forever. It doesn’t matter if you have a toxic or a shrewd CEO, you are still Uber, you are what you have done to the world. Should we even be investing in that sort of thing? This goes so far beyond the lack of profitability actually. Silicon Valley’s lack of accountability is just adding up into a mountain of monopolistic like behavior that I think has damaged America. It’s desperation personified, the desperation to maintain control in a changing world.
As independent contractors, Uber drivers aren’t subject to requirements around minimum wage, overtime, or healthcare, let alone other benefits and regulations. That’s profiteering on the back of technological slavery,that’s an economy of desperation that feels not just sleezy but the start of a Millennials generation slipping outside the Middle Class. Historians will say that kind of rising wealth inequality started with things like Uber.
Softbank owns 16.3 percent of pre-IPO shares. A sizable chunk of that money is likely oil money from Saudi Arabia. But Uber doesn’t run on data the new oil of the 4th industrial revolution. Uber runs on the swear of drivers, real people, immigrants — people desperate just to make a buck.
Silicon Valley’s leadership has been such a failure in ethics, it’s hard to quantify how bad this is for the internet and for capitalism. From Facebook to Google to moral decisions that even outrage employees of Tech companies, it marks the beginning of the end for Silicon Valley being the epi-center of global innovation. These are signs and signals of an empire, of a machine in decline. Uber is a microcosm of this. Uber won’t exist in 2035.
What Silicon Valley will be in 2035 is not the place it is today. And probably, America will never be the same again.


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