Why Uber is a Doomed Investment

Uber’s valuation of $40 Billion as a result of its last financing appears at first blush to be a ringing endorsement of the company’s business by smart money. But we here at Midas Letter have concluded that while the company is quickly agglomerating market share in major cities throughout the world, they are doing so by flaunting the law, lying to employees, and advising potential employees to obtain insurance through fraud – not at all a sustainable business model.

If you take into consideration the rapidly expanding number of jurisdictions who have flat out banned Uber, and add to them the equally vast number where anti-Uber legislation is pending, one must question whether or not this is a business model that will even survive going forward.

It is important to note that the earliest investors all hail from previous technology successes, and they have already seen their initial investments multiply in theoretical value by anywhere from 1,000 to 20,000 per cent. Problem is, they’re going to need an IPO to realize their gains (in most cases), and so without an IPO, they’re investments would be ashes.

Also important to note that all the new investors are comprised primarily of giant funds like Fidelity – notorious for being the exit strategy for many startup technology failures (remember webvan.com?…$860 million later….)

If you live anywhere in the continental United States, you can’t help but be inundated with Uber’s mammoth ad spend as it gropes blindly for a business model that does have legs. Apart from its positively neurotic tiered ‘driver’ class, the company now envisions replacing couriers and pizza delivery guys with Uber services. Innovation or desperation? I’ll let you decide.

Among the company’s abhorrent and amateur flubs is spamming both potential customers and potential drivers with texts and emails.

Uber is Not a Technology Company

If I start using a broom to paint buildings, would I be considered a disruptive technology company? No. I’m merely re-purposing an existing technology in a slightly innovative way.

But to read the extreme hyperbole that accompanies any gushing review of Uber, we are expected to be impressed by their ‘disruptive technology’. The disruptive technology in question here is the internet. Sorry Uber, you are neither a technology company, nor that disruptive. Unless of course, your competitive differentiator is breaking the law. And in that regard, Uber has no peer. Except of course, for organized crime rings.

Here’s a world map showing everywhere Uber is facing civil or criminal proceedings. From outright outlawed in Spain, to class action cease-and-desist suits throughout the United States, it is not clear how long Uber will be able to continue defending itself before it has to go back to the capital well to refill the corporate bank account. But here’s a bet for you: ten will get you twenty if Uber doesn’t see its valuation slashed in the next round.

Surge Pricing Patent: The Height of Greed, Gouging

Finally, the purest signal of Uber’s pending demise is this latest example of infantile ‘my-bat-my-ball’ thinking that is characteristic of the company’s leadership.

So you’re in NYC and you need a cab at 6:45 p.m. on a Saturday night but so do 750,000 other passengers. Instead of adhering to a customer oriented predictable pricing model, Uber is going to charge you as much as ten times the normal fare rate at peak periods. And they want to patent this as one of their ‘proprietary disruptive technologies’. How disingenuous.

This form of surge pricing has been the badge of exploitive and predatory human perfidy since the first gold rush. Back in the Klondike days, the price of horses and shovels once you made it to the Klondike Trailhead were many multiples of what they were in the same locations before and after the gold rush. More mindless spending by Uber’s apparently juvenile team, trying to patent the unpatentable. Utterly laughable.

The concept flopped on what should have been the company’s busiest night – New Year’s Eve. But according to Uber drivers and passengers, New Year’s Eve was a huge flop. According to a story at BostInno, one Uber driver (apparently in Boston) commented on Uberpeople.net. “I just pulled up my passenger app and there’s about 10 [Uber drivers] within three blocks of me (and I’m not even in the most dense business area)”.

Ignoring the Law is Not an Innovation

At its most basic, Uber, if allowed to proceed, represents a regression in human evolution. Yes, the medallion approach to conventional taxi licensing does lend itself to monopolization. But am I going to start up an unregulated passenger jet service and ignore FAA regulations if Uber can do so with taxis?

Uber owes its momentary success to the ridiculous valuation it has raised money at, and the fact that everyone hates taxis. But like tow trucks, you only hate them when you don’t need them. Again, not a sustainable ‘consumer sentiment’, and therefore, not a sustainable business model.

The list of grievances against Uber today range for multiple instances of sexual assaults by drivers against passengers to outright fraud. Any company who’s biggest line item expense is legal fees against lawsuits is not long for this world. Any investor who plunks down their hard earned money for Uber in 2015 strengthens the old adage, “A fool and his money are soon parted.”

 

Source: Midasletter