However, a close look at Hoover’s model, financial statements, and the rideshare market provides investors with plenty of reasons to short Uber’s stock.
— Drive With Dignity (@DignityDriver) May 7, 2019
Reason No. 1: Uber has massive losses that will only grow
Even though revenue has almost tripled between 2016 and 2018, expenses have vastly exceeded revenue each year, leading to operating losses of $3 billion in 2016 and 2018 and $4 billion in 2017.
Anyone who wants to invest in the Uber IPO, or rideshare stocks, should take a look at those massive losses and keep their feet planted firmly on the ground. Those losses are only going to get bigger.
The reason is due to a counterintuitive chart in the Uber IPO prospectus:
As the number of ridesharing trips increases, the revenue generated per trip declines.
There are two really ugly reasons for this. The first is that Uber keeps introducing lower margin products, such as Uber Eats. The second is that Uber wants to fight off competition from Lyft and taxis, so it relentlessly cuts fares.
Neither of these strategies is going to change. So no matter how popular Uber gets, it will never be able to generate a profit with such low margins.