Description

Introduction

I believe Uber at a market cap of $55bn is a short due to several factors but not limited to the below:

First, the business model will continue to burn cash for the foreseeable future. As of Dec 31, 2021, Uber has had an accumulated deficit of $24 billion - this alone is half the company's market cap.  This was fine during the era of easy money, but times have changed. Cost of capital is increasing, funding is drying up, investors are much less patient with loss making companies, and talent is hard to retain with a falling stock.

Second, Uber operates in a significant complex legal and regulatory environment as highlighted below from excerpt filings. This makes predicting growth and cash flow difficult for a investor. The stock has fallen -36% this year, but technology or growth companies which burn cash have fallen much harder as cost of capital rises, funding becomes harder, and growth is unpredictable. I believe Uber is overvalued by atleast 50%. 

Business segments

As of Dec 2021, Uber had three operating and reportable segments: Mobility, Delivery and Freight. Below is the revenue breakdown of all 3 segments. As can be seen, the US continues to be the lion's share of Uber's revenue, almost 60%

Mobility refers to products that connect consumers with drivers who provide rides in cars, auto, motorbikes, etc. Over 78% of all mobility trips are outside the US. The company derived nearly a quarter of its mobility gross bookings from 5 metros - Chicago, Miami, New York, Sao Paolo and London

Delivery allows consumers to search for and discover local restaurants, order a meal, etc and either pick up or have the meal delivered.

Freight connect carriers wtih shippers on platform, and gives carriers upfront, transparent pricing and ability to book a shipment

Uber's loss making model can't rely on "Adjusted" EBITDA

My focus for any business is to triangulate the growth in cash flow over the long-term. I believe it is unlikely that Uber will generate relevant profits or cash in the next 3-5 years to justify its market cap

Historically, Uber has incurred significant losses since inception, specifically operating losses of $8.6bn, $4.9bn and $3.8bn in 2019, 2020 and 2021.

Uber reports "Adjusted" EBITDA losses of $2.5bn in 2020 and $774million in 2020 and 2021. The issue with Adjusted EBITDA is that it is not at all reliable as a measure of future cash generation, as Uber admits below, for instance adding back stock based comp which Uber admits is a "recurring" significant expense 

 As can be seen below from 2019 to 2021, Uber has consistently had negative operating cash flow. This figure has been boosted by stock-based comp, impairment of debt/equity securities (2020), impairment of goodwill, long-lived assets. 2021 net cash used in operating activities reflects a $1bn cash inflow related to a legacy auto insurance transfer.

As of June 2022, Uber reported a positive $454 operating cash however this was due to a $7.2bn add back highlighted below and $829mm of stock based compensation.

I believe it is highly likely that Uber will report relevant profits or cash flow to justify its market cap, I think it is more likely Uber reports continued losses as a results of higher operating expense increases due to several reasons also highlighted below by the company.

As of June 2022, Uber's long term debt net of current portion were $9.27bn whereas cash was $4.4bn

Uber operates in a complex regulatory environment that make predicting financials difficult

As per Uber's revenue recognition policy, the company states "we have no performance obligation to end-users, end users are not our customers"

Uber operates in a complex regulatory environment that could force it to make changes to its business model, including revenue recognition, costs etc . 

Governments around the world are enforcing laws which mean it is challenging to forecast the growth of Uber. Below are excerpts from its filings. Uber has in the past entered in arbitration with more than 15000 drivers asserting similar classificaiton claims. Uber had to pay approx $372mm as of Dec 2021.

Equity stakes - unrealized losses on several including Didi, Grab, Zomato etc

The company has had unrealized losses on several of them, including Didi (China), Zomato (India) and Grab (Singapore) which . Below are filing excerpts 

Competition

The mobility, delivery and logistics industries are highly competitive with low-cost alternatives. Uber faces significant competition exists in mobility, including with personal vehicle ownership and usage, Lyft, Grab, Ola, Didi, etc. The company has significant competition in delivery with companies, including DoorDash, Deliveroo, Instacart, Rappi, Delivery Hero, Just Eat, Amazon, etc. 

Risks to thesis 

The key risk to the longer term thesis is that Uber is able to turn meaningfully free cash flow positive. 

Catalyst

Regulatory environment

Uber continues to lose money