Stewy

Stewy

Buy Uber, For The Love of God, WHY?!

Please explain how Uber is going to make a profit. Anybody?

Personal pet peeve. People recommending stocks without explaining the fundamentals that make the stock a good buy.

Enter Investor’s Business Daily’s Alissa Coram. In an article today entitled, “Uber Leads 4 Top IPO Stocks With Compelling Setups: Which are Closest To Buys?”. Alissa outlines the reasons for waiting to buy Uber stock based on a possible 5 day base price below its original IPO price that would suggest it is a value based on a probable future upswing in price.

I understand the logic, but what if Uber has absolutely no path towards profitability? Just buy it based on some formula that doesn’t in any way take into account the actual fundamentals of the company?

Headline From Investor’s Business Daily or IBD, which is also the initials for Intestinal Bowel Disease

I’d like to run across one article that clearly defines why the author thinks that Uber will make a profit in the near future. We are 10 years into the creation of Uber. It’s growth of new riders has slowed dramatically and it’s losses have grown dramatically. Up until this point Uber has literally just purchased market share. It has taken rich investors money and used it to sell rides for 50 to 60% less than what it costs to provide them.

Here’s the thing about scale, it doesn’t work if what your selling doesn’t decrease in cost as you scale. Uber is at a point where it is not showing any appreciable decrease in the cost of providing rides as it adds additional riders. Each additional rider is simply increasing Uber’s losses. This math is born out by Uber’s accelerating losses even as it grows.

All of this could be ignored if someone could point to what it is that Uber is going to do in the next 6 months to a year to reverse a trend that has existed for 10 years. Even Amazon started making money at year 6 and it showed a path to profitability years before that.

So Alissa, why on earth should anyone buy Uber stock based upon your outlined reasoning? Why do YOU think Uber will become a profitable company?

Do you believe it when it says it will make money on flying taxis? Or is it the autonomous vehicles? You know the ones that Uber says are at least 3 years away. Oh and if you delve into the costs associated with owning your own fleet of vehicles their ability to drastically reduce Uber’s cost to deliver a ride significantly is questionable.

Uber could simply raise prices, but they tried that about 10 days ago and suffered a dramatic shift of ridership to Lyft.

A good journalist would ferret these things out, or one could just throw “Uber” into a headline and hope for clicks.

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