Markets were badly shaken this morning as news of China’s planned tariffs on $60 billion worth of U.S. goods hit the wire. I emailed Boom & Bust subscribers earlier with an update on my Dark Window scenario, and some insights into what to expect over the next few months. I’ve labelled one possible outcome “Holy Crap,” so you might want to check it out.
All the red across the board isn’t doing Uber any favors. Talk about bad timing for an IPO. But even before markets began correcting, the ride-hailing company was not feeling investor love. It’s the 4th worst IPO in the last decade, closing on its first day 4.5% below its launch price.
These IPOs are priced a bit below what’s perceived as fair value and investors almost always fight over the stock right out of the gate. Not Uber though, and it’s another sign that we’re in the late stages of the tech and global stock bubble.
When we were in the late stage of the last tech bubble, in 1999, a swarm of Internet stocks with no profits, and only some with little sales, came out of the woodwork with super-high valuations. That’s what I call the infancy stage of a new technology where you actually see the most extreme bubble versus valuations (something Rodney will be talking more about in the coming weeks).
The next S-Curve wave emerges on a tiny scale as the previous S-Curve is peaking after surprising everyone with its growth and scale. That makes the new companies look like the next big thing. They may well be the next big thing, but not right at the beginning of the curve.
Yet, investors always over value technologies in their early stages… when they’re small, unprofitable, and slower to have impact.
They then greatly underestimate them in the longer term (that’s the trouble with our natural inclination to think in linear terms).
This is what’s going on with Bitcoin, cryptocurrencies, and blockchain technologies today. They’re in their infancy, just like the Internet was in 1999. Investors got burned… and then when the players were ready for the real lift off in 2001 – 2002, most missed the launch.
Mark my words: blockchain is the next S-Curve in the Internet arena. It’s the Internet 2.0, only on about a 20-year lag. Starting with a wild and crazy bubble based on minimal sales and no profits, by the top of the next global boom, around 2036/7, it will be one of the next big things.
This is also what’s going on in the present “unicorn” bubble of IPOs. Look at this chart of 12 recent IPOs, executed or about to…
Uber is the largest in sales, but nowhere near in the number of users. Of course, there is more revenue per user than on the typical online sites that have hundreds of millions of users in this table.
The important number to focus on here is Price to Sales, since most have only losses. Uber is higher than Lyft at 8.8 times versus 7.8. After all, it has more scale and leadership. Still, 8 times sales is a very high valuation. Normal companies would go for more like 1 times sales.
But the real story, as usual, is that the cumulative losses of these companies is only growing, with Uber the worst, losing near $14 billion.
It’s natural for early stage companies to lose money when they’re starting up and building to scale and breakeven. But there are serious questions about whether Uber (and many others) can ever be profitable.
Its margins are low, there are an increasing number of competitors like Lyft, and its drivers are barely surviving on low wages and long hours. It’s an ugly picture, with little in the way of hope.
This underperformance by Uber is not conclusive yet, but it looks like a sign of the beginning of the end, just like 1999 for Internet stocks. Bubbles are such that people end up greatly overpaying… chasing dreams, er… unicorns… and paying a nasty price. Then, when the greatest sale of a lifetime opens up before them, they’re gun shy! Don’t be one of those investors. Stick with us, and we’ll make sure you’re in the right place at the right time… at all times.