Why Uber Will Defy Odds With Its IPO 🚕 💸
You’re buying into a business model that does’t exist yet.
Let’s face it. Today Uber is nothing more than a glorified taxi service.
But what does the future hold for Uber and how will this effect it’s IPO?
As of late, tech IPOs have not performed the best. The big wave starting with LinkedIn’s great success, died off with Facebook’s disastrous IPO.
Lyft, a direct competitor to Uber has seen weak performance with its recent IPO. Share prices have slide well below its initial price. Why is Uber different?
There are two major factors in the future success of Uber
- Self driving cars
- Becoming a logistics company
While Uber’s current model business model is experiencing a slow down in growth, these opportunities can easily solve this problem. This would also greatly help to reduce its $7.8B billion debt.
Uber Eats is major driver (pun intended) for Uber’s growth as of late. No longer needing human drivers will greatly improve profit margins for Uber Eats and for the business model in general. Uber will need to find the smoothest possible way to transition from Human drivers to fully-autonomous vehicles. Knowing Uber’s corporate personality, a smooth transition is unlikely. There will be an uproar and likely protests. Still, after a rough patch Uber will save itself billions of dollars.
Switching to self driving cars will save Uber tons of money however, there is a limit to its current business model. Uber can’t rely on acquiring new customers (hence the Careem acquisition) and increasing the average price per ride is a dangerous game. Expanding its business model is how Uber can grow.
If you flash back many years ago, Amazon was merely an e-commerce company. If you go even further back Amazon was just an online bookstore. Flash forward to the present, Amazon has grown into the leader of cloud computing and a logistics powerhouse. The logistics business has become so powerful that shareholders of UPS and Fedex are spooked.
Amazon using its existing delivery network to grow revenues only makes sense. To see a major surge, Uber will need to do the same. Drone powered delivery services is a huge opportunity for Uber. Other creative uses of its complex mapping systems could generate billions.
If you buy into Uber’s IPO, buy for the long term.
I typically avoid most tech IPOs. This is because typically they debut and the share price tanks. Then the price either experiences a rally near or after the first quarterly earnings report or stagnate until they (eventually) recover.
This means if you want to make short-term dollars on Uber, your best bet is to wait until the market expresses discontent with the company. Given Uber’s tumultuous past, I doubt this will take very long.
Uber has a chance at becoming the next Amazon. If you buy into Uber’s future as more than a car sharing service, you will realize their is huge potential upside. If not you should avoid Uber’s IPO like the plague.
So far Uber had its fair share of management related scandals. Still, Uber is much smarter than Groupon. I expect Uber to expand its current model without too many big failures over the next three years.
Don’t miss out or you’ll feel like a chump in a decade. Just don’t rush to buy shares either.
