A warning about the Uber IPO…

What's up, guys? It's Graham here.

So, two things. Number one, a picture of my land has been going viral lately on the internet. People are saying it's like a black hole or something like that. I just want to put this to rest once and for all—it's just a picture of my lamp. So anyway, let that be known.

And number two, some shocking news, and it's actually not that shocking. We've known about this for a little while now, but Uber is getting ready to have an IPO at any time. When one of these tech companies is about to go public, it comes with a massive amount of attention and hype. Then, investors get into a frenzy to try to buy it as soon as possible to ride the wave to as quick of a profit as they can.

However, let's be real; many IPOs don't exactly go as planned, and this could actually be a massive mistake that many people should avoid. I'll explain why. Of course, I just want to get this out of the way for legal reasons: this video is purely just my opinion, and any speculation on my part should not be seen as financial advice or fact. All of this is really just for entertainment purposes only. I have no monetary gain in the performance or lack thereof of Uber stock, and you should hit the like button if you understand that this video is just for entertainment purposes only. So no one's upset here.

Okay, anyway, let's get into the video. Here's some background: Uber, if you haven't heard of it, you really need to get outside more often! They’re one of the largest, if not the largest, ride-sharing platform in the world, with 91 million active monthly users. Don’t get me wrong; I’m a huge fan of Uber. I use them all the time when I can’t get a Lyft. That was a joke! But seriously though, I use them a few times a month, and I know they’ve been through their growing pains and struggles along the way.

It is a company that I find very useful. They also expect to IPO and become a publicly traded company with an evaluation nearing a hundred billion dollars. That's basically the value of a hundred Kylie Jenners. However, once you start getting into the financials of Uber, this is where things start getting a little shaky. They lost 1.8 billion dollars in 2018, and in addition to that, they’ve handled ongoing lawsuits, are fighting regulation every step of the way, and they warn that they may never achieve profitability.

So from my perspective, I'm just not seeing how this IPO would make a good investment. Here’s where I personally believe that many of these IPOs might have a darker side. We’ll put on our tinfoil conspiracy theory hats for this one, and let me explain. So, typically an IPO is seen as a way for a company to go public and then raise money, and then use that money to reinvest back into its business. But Uber doesn’t need that money. If Uber needed to raise capital, they would have no problem doing it.

By going public, they’re just opening themselves up for so much more scrutiny. So what's the point of Uber going public? Now, call me crazy here, but I personally believe that an IPO like this is just a way for existing investors within the company to finally cash out of their position and take a profit while they think the company might be nearing its peak value before it starts declining.

But just imagine with me for a second—if you’re an early investor in Uber and you sink ten million dollars in it in 2012, and now today, that ten million dollar investment is worth 250 million dollars, you've had your capital now tied up for seven years. Your money isn’t growing as fast now as it was during the early days. The company still isn’t profitable.

Maybe you anticipate it's going to start declining in value in the coming few years, and you just want to take your cut now, take your profit, move on, and move it into something else. So what do you do? Well, you get all of the other private investors together, and you pressure the company into going public. Then, you can cash out of your position, get your money back, and then move on to something else. Meanwhile, someone else is holding the bag when they buy it, and that way, it’s their risk and not yours.

Now, to be fair, I’m making this a lot more cynical than it really is. Don’t think that every IPO out there is just a way for investors to cash out and get a quick money grab; that’s certainly not the case. Many companies just need to go public beyond a certain point. But I do believe that there are IPOs out there as a way for investors just to cash out, get their money when they believe they've hit somewhat their peak value, and then it’s someone else's problem to worry about.

I just put myself in that position and think to myself, if I was an early investor in one of these companies, would I want to sell at the point where I think the company is somewhat hitting its ceiling? Or maybe when I think I've already gotten the highest return for my money, given the risk that I want to take? And if I was one of these investors and I felt that way, then certainly, absolutely, I’d want to sell, and an IPO is a way to do that.

Now, just look at some of the average performances of previous IPOs. The average return for IPOs from 2012 to 2015 was just 7%. Meanwhile, the S&P 500 was up 60%. Just think about that for a second! The overall stock market performed nearly ten times better than tech IPOs during that same time frame.

And let’s be real here; picking one of these tech IPO winners in the long term is really kind of like picking a needle in a haystack. Now, we could quickly go back to a recent one, and that is obviously Lyft. They opened at $78 and then went down to $61 today. I think we could all agree that that didn’t go as planned.

Or just take Snapchat, sorry, Snapchat for example. They IPO’d at $27 per share about two years ago, and then it’s done nothing but drop further and further. Personally, I believe that it will continue to drop. They have offered nothing innovative lately until it’s going to become either a penny stock or some other company just comes and buys it and then tries to revamp their business model. Honestly, I have not used Snapchat in such a long time, and I think that's an indication of what I think of them as a company.

Now, let’s even take this example of Facebook. Even though they’re trading right now at $180 a share, they began trading at about $38 per share in May of 2012, and then the stock price dropped down to about $18 just three months later. Another really good one is Alibaba. They opened up at about $93 and enjoyed quite a run up to about $115, with some really good press around it. Then they continued to fall for about a year until it hit $59.

The reality is that I believe that many of the people who are going and buying these tech IPOs on the day they start trading are just not very sophisticated investors. These are investors who are very speculative, who hope that they can buy in at an IPO price and then ride the wave on momentum and then hope to cash out very shortly after for a quick profit. The problem is that catching this wave is nearly impossible. Timing this wave is nearly in, and being able to make very quick, easy, fast money isn’t without a very considerable amount of risk.

So if you’re interested in investing in Uber, here’s my take on it. First of all, never invest in a company on hype. Hype just means that the price is artificially inflated through investor excitement and exuberance and doesn't really reflect the true actual value of the company and what it's worth. Like, excitement doesn't pay the bills. I can't imagine any board executive sitting there at a hedge fund thinking like, “Okay, so we've got Uber excitement that's up 40% last month, and the excitement is expected to continue over to the next quarter by about 80% excitement in 2020. We're expecting to see an average growth of about 8% excitement per month. Congratulations, you guys! We're about to see a lot of excitement!”

Just remember, this is a company that lost 1.8 billion dollars last year and doesn’t have a clear path to profitability. This is also a company with a lot of competition that it’s going to need to fend against. This is also a company that's going to have to deal with self-driving cars one day, and there's a risk that they won't be able to adapt. This is also a company that many people compare to Lyft, and it sets the precedent that Uber can also see a similar decline in its stock price.

Now, of course, if you believe objectively that this is a good long-term business and that they're undervalued and have plenty of room to grow and expand, then by all means, go ahead and invest in it. But just remember that many investors out there are very emotional, and they just want to try to get in for a very quick profit. Those investors think that they're smarter than everyone else, and at the end of the day, that is going to affect the price that you pay, especially around the time of an IPO.

That's a point I want to stress again—that I think is very important: every investor out there thinks that they’re smarter than everyone else. So just keep that in mind that any time you're trading, especially around hyper excitement, you’re just really dealing with psychology and emotion, and that's what really ends up driving the price of a stock early on.

However, just to be fair, in Uber’s defense, I do think it was very smart of them to let Lyft IPO first. I don’t think that anything that Uber does isn’t done without a lot of forethought and a lot of strategy. I think that by letting Lyft IPO first, they could avoid a lot of the pitfalls Lyft had to learn from along the way. By doing that, I almost feel like that gives Uber a massive advantage that Lyft just did not have, especially now that they could adjust their market valuation to reflect maybe a more reasonable price.

Also, I think Uber is just a really useful service, and I will continue to use it, although most of the time Lyft is cheaper. I’m going to call it like it is—that's the reality; we kind of all know it. Lyft just happens to be cheaper, but when Lyft is not cheaper, then I use Uber.

So anyway, going back to the IPO, I just think to myself as an investor. If I was thinking about buying this, how is Uber going to achieve profitability? Once we see self-driving cars, are we going to need Uber anymore? If so, how is their business planning to adapt, and how does that change the ride-sharing business model?

And then also, what's stopping Tesla from going and making their own self-driving automobiles and then just running those on the roads at very cheap prices, just undercutting Uber until they drive Uber out of business? Then they just become Uber. Given all of that, how is Uber planning to expand? I know we've seen Uber Pool, Uber Eats, and Uber delivery.

How can we continue to grow and keep the momentum? To me, there are really just so many questions to consider this a viable investment without really just seeing how things play out. Again, most importantly, let's not fool ourselves into thinking that some of these IPOs are just to let verge investors graciously invest in booming tech unicorns and make profit.

I personally see many IPOs as just a way for early investors to finally cash out and reap the rewards of their early investment. Again, just my opinion, not fact, not financial advice, for entertainment purposes only. All I'm saying is this: just be smart out there. Analyze what you're doing; don’t get caught up in hype or excitement, and really think objectively about where your money is going.

Honestly, who knows? I could very well be wrong. Uber could take over like an Apple or an Amazon and just dominate the planet. And again, this is all just my opinion; I am human and I get things wrong. I am not always going to be right, and this is just what I think. So don’t take any of this as fact and definitely do your own research on all of this.

Also, let me know what you think down below in the comment section. I think all of you know that I read every comment, and I do my best to respond to as many people as possible. So I'd be interested to hear what you guys think as well—if you agree with me, if you think I'm right, or you think I'm wrong, or you think I'm an idiot. If you dislike, unsubscribe, just whatever it is, just let me know down below in the comments section.

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Thank you again for watching, and until next time!