Uber and Lyft are an optimistic bet. They can't generate profits right now but (Uber especially) they might find a way. Self driving cars are otw. They could be in position for that. Regulation is otw. This could give them a moat.
..also efficiency, I suppose. A lot of recent "marketplace" successes (YouTube rev-share, app stores, steam, iTunes...) are built on thick margins. Uber and Lyft take 20-25%. Uber & Lyft's main job is software and software scales. There's no inherent reason preventing them from operating within a profit producing budget, especially if growth-at-all-costs ends. It'd be hard to justify the share price though.
Remember that FB went public well before the ad business turned into the money machine it became.
Not saying it's a good investment. I suspect it's not, but there aren't many good investments around. etc.
> but there aren't many good investments around. etc.
Like, can we talk about this just a sec? I feel this too, that there just isn't a lot of room left in the economy. But, it just feels like that is crazy, right?
There is all this money, more than ever before. There is all this technology, and it's the best that has ever been out there. There is all this education and learning, we're better at teaching people than we've ever been. And there are all these people, nearly eight billion of us. Things, objectively, have never been better!
So, how can we be running out of good investments? It just feels like I'm nutz here. One one hand, we have all this potential energy, but on the other, there is just no where for the kinetic energy to go. Humans aren't just boulders on hill sides, we don't tend to sit still, we get moving on our own.
Why do I feel like I'm missing something big?
There's a lot of factors but the big ones I've noticed are healthcare costs/risks and overall income inequality drastically reducing the pool of potential entrepreneurs. It's less a problem for software engineers but it's a significant limiting factor for any venture that's applying software to specific industries (think transportation, agriculture, manufacturing, etc) when founders can't get their heads above water long enough to consider a startup.
Zoning laws are also slowing growth in many cities so a lot of money that would normally be chasing low risk returns in real estate has to move up the ladder. The number of things to invest into without relying on a bubble just can't keep up with the amount of money coming in from fiscal policy and foreign investors.
Construction in the US is minimal. The initial costs of any industry with production, manufacturing are immense. Healthcare is one area where there is space for clear improvement, but being a rigid to change as it is, healthcare startups really struggle to penetrate the industry.
You may invest in the service / food industry, but it doesn't seem to be as hyper-scaling friendly as it used to be. I do not foresee any trend since Starbucks that has been able to take a country by storm. You can invest in smaller restaurants, but that is more of a small business investment than anything resembling stock, so good luck making it a liquid asset, even if successful.
Also, a lot of investments are mislabeled (often purposely) as tech startups but are actually some thing else. Uber, Lyft, Airbnb, Coursera, Udacity, Instacart, Juul, WeWork, and the like are to me, products from a different industry all the together. The tech aspect of their business does not influence their success as much as it may seem.
(1) Uber and Lyft have worse unit economics than a taxi company because taxi companies leverage some little bits of scale by pooling fleet ownership costs and insurance.
(2) Uber and Lyft are currently pricing rides at about 66% of what it costs to provide.
(3) There's no loyalty.
(4) There's no indication that people are willing to pay what it costs to provide their service, doubly so if its actually more expensive than a taxi due to efficiencies stated in [1].
(5) Self-driving cars are a ruse in this context; many companies are developing them at the same time and when one gets them, shortly after, the other will too. And so will all the car companies itching to get into ridesharing (I'm looking at you, Tesla).
To my knowledge, while Amazon wasn't turning a profit in the early days, re-investing in growth, they weren't selling you $20 bills for $12 in the hopes someday "drones" would allow them to turn a profit.
By that indicator?
This is way more like the status quo of private equity. A bunch of people throwing money at negative cashflow businesses. I wonder if this period of time in history will be looked at as ridiculous.
Another poster in this chain made a good point, however - due to very low taxes, people have a lot of cash and there is just finite opportunity currently.
If my driver is closer, and I have scale to keep them busy, you'll have no way to compete without dumping in those same millions.
It's how Amazon worked.
Or indeed Google develops a competitor themselves if Uber and Lyft gain 9-digit valuations. It could do that in less than a year and for a few hundred millions at most. Taking a page out of Apple's book of vertical integration and squashing popular services with in-house offerings.
That assumes that the feature in Maps not only exists but is widely used by consumers in preference to individual service apps; my impression is that that is not really the case.
It's a two sided market that takes a significant investment to create. Yes, Google can add G-Car to maps, but where are the drivers coming from? They're not going to switch unless they can expect more income than from Lyft/Uber. Google can't provide that without investing a lot of money in incentives.
The best analog to Lyft/Uber is Mastercard/Visa. It's theoretically easy to enter the market, but in practice it's going to be very difficult to develop your own two sided marketplace going against the incumbent competitors.
Uber is a bit of a different beast. It's valuated much higher, and it banked a lot of that valuation (in my perception at least) on the perspective of getting self-developed fully automated driving capability to the market and thus having an edge (and an actual moat) to be used to finally reach profitability by eliminating the costly drivers.
Thus I would expect its valuation to stay high for a while, but drop sharply as soon as the "fully automated driving is right around the corner" bubble pops for real.
I think we'll see facebook similar treatment, comes out to immediately drop
Don't forget government pension programs that are some of the most mismanaged portfolios around.
1. Could you please not call something a ponzi scheme, just because it looks scammy? This seems to be a trend that has caught on during the crypto-bubble (where admittedly there where a lot of ponzi schemes), but not every scam is a ponzi scheme.
2. Whoever trades on the stock market knows the risks.
Whether the pre-IPO VC funding cycle is a ponzi scheme is another topic...
If money from new investors is repeatedly used to pay old investors, it resembles a ponzi scheme.
If it is unrelated to the fundamentals, you are in full speculation territory and the only goal buying the stock is to sell it eventually to a bigger fool that will pay more for it.
Both companies lose a crazy amount of money, they have close to zero moat, customers have no loyalty and will go to another rideshare service if it is one dollar cheaper. The fundamentals don't make any sense, but still we read everywhere that Lyft and Uber at those prices make sense.
The VCs and founders decided to get out while the market is up (and while they still can) and they will sell their shares to the "dumb" public that will buy into another overhyped tech stocks without really understanding the fundamentals. The employees cannot sell before 6 months, they are locked out.
After a couple weeks the market will probably realize this stock is overvalued and it will start to go down, but at that point all the big fishes will be out already and who will hold those toxic assets? individual investors and employees that cannot yet sell.