Uber, the ride sharing platform that has disrupted (literally) the taxi industry worldwide, is heading for an IPO, if the writing on the wall is to be interpreted.
But with the company raising money already in public markets through the offices of Morgan Stanley, the question is, will Uber be a good investment?
One really has to question the company’s business model, which relies in large extent, on breaking existing laws, ignoring insurance rules, and running roughshod over employees while enticing them into employment with the promise of a shiny new vehicle. At its most essential, the company is simply replacing the aging global taxi fleet with new cars, and new drivers.
The drivers are not necessarily an improvement on the old drivers, and the newness of the vehicles has obviously got a “best before” date attached.
By the time these vehicles start to resemble the condition of the ones they are replacing, will these Uber drivers have made enough money to finance a new car purchase?
Looking at the anecdotal deluge of complaints from Uber drivers on social media, it would certainly appear that the answer is trending toward the negative.
Although, I stumbled across this Tweet:
I’ve never heard that before?
Making a $1 million from driving a taxi? Or is this Uber’s idea of using social media to attract drivers?
When I tweeted back requesting anything to substantiate the claim, I received no reply.
Uber’s legal bills must be huge
Last month, Uber agreed to pay $84 million to settle lawsuits in California and Massachusetts to the 385,000 plaintiffs in two cases brought against it in 2013, over whether its drivers should be classified as employees.
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The company’s litany of litigation in cities around the world means it is constantly pouring money into the legal profession just to stay viable.
And they are not always successful.
The city of Austin, Texas showed the door to both Uber and competitor Lyft, after voters there rejected the company-sponsored “Proposition 1” that would have overturned a bill requiring mandatory fingerprint-based criminal records checks for ride sharing drivers.
Uber and Lyft spent a combined $8 million on the effort to build support for Prop 1. That’s just one fight.
In Toronto, the city council inexplicably voted to approve changes to the rules to accommodate Uber, despite widespread opposition from the taxi industry.
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There is no information of how much money Uber spent in pursuit of that victory.
The Prospectus is thin
Morgan Stanley’s prospectus offering document is 225 pages long, but contains very little in the way of financial information. The billions of dollars in investment it has so far attracted from venture capital investors including Google suggests that they must have seen financial data, and it must be outstanding.
But there are many cases of ideas that went on to become major financial successes before they ultimately collapsed after legal issues proved insurmountable.
Enron comes to mind, as does Bernard Madoff.
I’m not rushing into the many offers that have come my way to participate in Uber financings, smart money notwithstanding.
A company whose business model relies on sweeping changes to a legal system that has evolved over decades and become entrenched worldwide does not, in my opinion, a sound investment make.
James West is an investor and the author of the Midas Letter, an investing research report focused on Canadian markets.The views expressed on this podcast — edited for clarity, brevity and compliance with securities laws — are his own and are presented for general informational purposes only.
They should not be construed as advice to invest in any securities mentioned.
James West and/or associated funds do not own shares in any securities mentioned in this article.
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