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August 8, 2019 | As Uber Nation Grows, Who Will Get Rich?

Rick Ackerman

Rick Ackerman is the editor of Rick’s Picks, an online service geared to traders of stocks, options, index futures and commodities. His detailed trading strategies have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders. Barron’s once labeled him an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. His professional background includes 12 years as a market maker in the pits of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader.

Uber shares are in the capable hands of world-class manipulators, judging from the way they powered the stock past a tidal wave of bad earnings news on Thursday. Calling these arse bandits “the smart money” doesn’t quite do them justice. If they were in another line of business — horse-racing, perhaps — what they accomplished over the last day-and-a-half with Uber stock would be equivalent to winning the Kentucky Derby with a ten-year-old glue horse. Take a look at the chart, which shows after-hours trading as green bars. When news hit after the close that the company had suffered its largest quarterly loss ever, the stock plunged $5.62, or about 13%, in mere seconds. But it gained back nearly 90% of it almost as quickly and has since settled into a holding pattern around $40. Amazingly, that price is above where the stock was trading the day before the awful news hit. It is currently near the midpoint of Thursday’s wild gyrations, whistling an Adele tune as though nothing had happened.

Harry’s Mythical Furniture Store

Uber’s business model is reminiscent of the National Lampoon comedy sketch about a mythical Harry’s Furniture Store, where prices are so low that the store loses a little money on each sale. “So how do you turn those losses into profits?” asks the interviewer. “We make it up with volume!!” replies Harry. Uber similarly is serving up the same story, helped by a credulous press that never tires of hyping companies that operate on a grand scale, no matter what their prospects. Uber’s CEO doesn’t quite come out and say it, but they are just a $70 billion version of Harry’s, with a vision of, if not profits, then smaller losses. “The company’s bookings are still increasing at an impressive rate,” reported The Wall Street Journal— above 30%—and [Khosrowshahi] is confident driver subsidies will fall long term as the company keeps expanding in areas like Uber Eats food delivery.” (We note that Amazon exited the food-delivery business because it couldn’t make money at it.)

Rick’s Picks is on record with a prediction that neither Uber nor Lyft will turn a profit in the foreseeable future — even if, as some investors appear to be betting, one of them goes out of business.  Regardless, investors and Wall Street touts seem to think Uber will someday make tens of billions of dollars every year using drivers who will continue to work 60 hours a week just to pay the rent. The drivers must surely know that the eventual profitability of ride-hailing companies explicitly depends on drivers making less and less money over time. If this comes to pass, the drivers will be living an oxymoron: self-employed slaves.

Middle America’s Underemployed

Is serving Uber Nation the sorry fate of an increasingly underemployed middle America? Walk down any major street in a big city and you might get the impression from all the Uber/Lyft cars that we’re already halfway there. The prospect that someday millions of workers will drive for ride-hailing and food-delivery companies is not exactly a vision of prosperity. Do investors who have valued a profitless Uber at $70 billion actually believe they will get rich off creative destruction of such magnitude as Uber has visited on taxi fleets and auto makers? This is deflation operating on an epic scale, literally where the rubber meets the road. If there are going to be any big winners, they are not likely to be those who are buying shares of Uber and Lyft at current prices.

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August 8th, 2019

Posted In: Rick's Picks

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