Proof of investor irrationality: The case of Uber (and Lyft).

Richard Durant offers the most comprehensive analysis I’ve seen of Uber’s prospects. It’s largely based on Uber’s own numbers, mentioning Lyft mostly in passing as a competitor and sometimes in comparison.^[1] It’s devastating. It should also put to rest any residual notion that investors are rational because for all the numbers, it really only confirms what every analysis I’ve seen has been saying for quite some time.^[2]

It’s also hard to see how most of this analysis doesn’t also apply to Lyft. Sure, Lyft is a different company. Its numbers will be different, mostly smaller, because Uber is the elephant in this particular room. And Lyft has not, to my recollection anyway, entered all of the business lines that Uber has (I’m thinking of trucking and meal delivery). So yes, those particular critiques won’t apply. But they’re really only icing on the cake in Durant’s critique of Uber.^[3]

Part of Durant’s argument^[4] echoes that of Rich Alton, that these are commodity businesses that can compete only on price and are otherwise interchangeable. Alton lumps Lyft right in here with Uber, saying that self-driving cars can’t rescue these companies.^[5] At least as long as there’s competition.

But if indeed, Uber is a world-killer, the numbers that Durant presents don’t show it. Durant’s conclusion is in his summary, right up top: “Uber is unlikely to ever be profitable and has no intrinsic value.”^[6] Which is to say, investors are holding a whole lot of nothing. Or as Stephen Wilmot put it in today’s (August 22) “Heard on the Street” column, “This is a ride that could cost investors dear.”^[7]

1. ^[1]Richard Durant, “Uber’s Profitability Problem Is Structural,” Seeking Alpha, August 21, 2019, https://seekingalpha.com/article/4287055-ubers-profitability-problem-structural↩
2. ^[2]Rich Alton, “Basic economics means Uber and Lyft can’t rely on driverless cars to become profitable,” MarketWatch, August 12, 2019, https://www.marketwatch.com/story/basic-economics-means-uber-and-lyft-cant-rely-on-driverless-cars-to-become-profitable-2019-08-12; Eliot Brown, “Uber Wants to Be the Uber of Everything—But Can It Make a Profit?” Wall Street Journal, May 4, 2019, https://www.wsj.com/articles/uber-wants-to-be-the-uber-of-everything-11556909866; Ryan Felton, “Uber Is Doomed,” Jalopnik, February 24, 2017, https://jalopnik.com/uber-is-doomed-1792634203; Yves Smith, “Uber Is Headed for a Crash,” New York, December 4, 2018, http://nymag.com/intelligencer/2018/12/will-uber-survive-the-next-decade.html; Stephen Wilmot, “Uber’s Long Road to Profits,” Wall Street Journal, August 22, 2019, https://www.wsj.com/articles/ubers-long-road-to-profits-11566471068; Julia Carrie Wong, “Disgruntled drivers and ‘cultural challenges’: Uber admits to its biggest risk factors,” Guardian, April 12, 2019, https://www.theguardian.com/technology/2019/apr/11/uber-ipo-risk-factors↩
3. ^[3]Richard Durant, “Uber’s Profitability Problem Is Structural,” Seeking Alpha, August 21, 2019, https://seekingalpha.com/article/4287055-ubers-profitability-problem-structural↩
4. ^[4]Richard Durant, “Uber’s Profitability Problem Is Structural,” Seeking Alpha, August 21, 2019, https://seekingalpha.com/article/4287055-ubers-profitability-problem-structural↩
5. ^[5]Rich Alton, “Basic economics means Uber and Lyft can’t rely on driverless cars to become profitable,” MarketWatch, August 12, 2019, https://www.marketwatch.com/story/basic-economics-means-uber-and-lyft-cant-rely-on-driverless-cars-to-become-profitable-2019-08-12↩
6. ^[6]Richard Durant, “Uber’s Profitability Problem Is Structural,” Seeking Alpha, August 21, 2019, https://seekingalpha.com/article/4287055-ubers-profitability-problem-structural↩
7. ^[7]Stephen Wilmot, “Uber’s Long Road to Profits,” Wall Street Journal, August 22, 2019, https://www.wsj.com/articles/ubers-long-road-to-profits-11566471068↩