Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Uber Loses Money

Uber (NASDAQ: UBER) is losing a lot of money. In particular, Uber reported a -$1.106 billion quarterly operating loss on 30 September 2019.

In addition, Uber reported a quarterly net loss of -$1.162 billion on the same day. Bizarrely, those numbers were an improvement over 30 June 2019. Uber reported an operating loss of -$5.485 billion and a net loss of -$5.236 billion on that date.

Therefore, the 29.52% revenue growth rate Uber reported on 30 September 2019 came at a steep price. Uber had to burn through a lot of cash to achieve that growth.

For example, Uber reported a negative operating cash flow of -$878 million, an investing cash flow of -$129 million, and a free cash flow of -$1.007 billion for the last quarter. Tellingly, Uber reported a financing cash flow of $1.993 billion on 30 September 2019.

Uber is Accumulating a lot of Cash

The high financing cash flow shows Uber had to borrow money to finance money to sustain its operations. Frighteningly, the $1.993 billion is an improvement over the $7.075 billion Uber in cash from financing Uber reported on 30 June 2019.

Uber burns through lots of cash and borrows money to sustain its operations. However, Uber has a lot of cash in the bank. In fact, Uber reported $14.641 billion in cash and equivalents on September 30, 2019. That figure was up from $13.690 billion on 30 June 2019 and $5.828 billion on 30 September 2018.

Thus, Uber is accumulating a lot of cash. Hence, it is easy to see why Warren Buffett is interested in Uber. The ride-hailing giant is a cash-rich company even though it burns a lot of cash. To clarify, Buffett said no the Uber IPO (initial public offering) but he did consider non-stock investing in Uber 18 months ago, CNBC reports.

Uber vs. Amazon

Strangely, Uber is similar to Amazon (NASDAQ: AMZN); which historically accumulated lots of cash while generating little income.

In 2014; for instance, Amazon reported an annual net loss of -$241 million and cash and short-term investments of $12.447 billion. Uber; however, operates in a different business than Amazon.

Unlike Amazon, Uber is heavily regulated and subject to government interference. In fact, Transport for London is refusing to renew Uber’s license because of alleged violations of British law, NPR reports.

In detail, Transport for London alleges Uber allowed unauthorized drivers to carry passengers in the British capital. Hence Uber could loose its biggest and most lucrative urban market outside the United States.

Can Uber Make Money from Self-Driving Cars

Strangely, the most valuable thing at Uber could be the company’s self-driving car technology.

To explain, Uber and Volvo have developed autonomous driving tech they can build into vehicles at the factory, The Verge claims. Hence, Uber could make money by selling autonomous driving technology to companies such as Ford (NYSE: GM), Toyota (NYSE: TM), and Volkswagen (OTCMKTS: VWAPY).

Uber’s new self-driving cars could be safer than rivals. Unfortunately, it is not clear who owns the self-driving vehicle tech.  The autonomous driving technology could belong to Volvo’s owner; China’s Geely Automobile Holdings Ltd (OTCMKTS: GELYF).

Importantly, Uber’s Advanced Technologies Group (ATG) is expanding its autonomous vehicle tests to Dallas, The Verge reports. Uber has been testing self-driving vehicles in Arizona for years. Uber’s efforts in Big D will be a data collection effort, Austin Geidt; Uber’s Head of ATG Strategy admits on Medium.

How Uber Could Make Money from Self-Driving Vehicles

Uber’s Goals in Dallas include developing definition maps for self-driving vehicles and artificial intelligence (AI) to “read.” Hence, Uber could make money selling the high-definition maps to other companies such as UPS (NYSE: UPS).

Another potentially Uber goal in Dallas is create driving simulations that engineers will use to “teach” autonomous vehicles and AI how to drive. Thus Uber is entering the machine learning business. Consequently, Uber could make money selling those simulations to automakers such as Tesla (NYSE: TSLA) and General Motors (NYSE: GM).

Finally, Uber could sell the raw data it collects in Dallas. Ford; for example, could buy that data for its autonomous vehicle development efforts. Other customers for that data include governments, delivery companies, retailers, and insurance companies.

For instance, the Dallas police could use Uber data to map out patrol routes. Meanwhile, Amazon could user Uber data to guide package delivery. Plus GEICO could use Uber data to pinpoint the most dangerous routes streets, neighborhoods, and intersections for driving. Thus, GEICO could give drivers who avoid dangerous routes  a discount.

Uber is a Big Data Company

I think Uber is becoming a big data company. Therefore, the most valuable asset at Uber could be the data it collects. Since data is the oil of the digital economy, Uber could sit on a gold mine of transportation data.

Currently, that data’s value is theoretical. Consequently, it could be years; or over a decade, before Uber makes money from that data.

Thus, Uber is a speculative investment in data collection and usage not a value investment. Uber’s potential value is in the cash and data it is accumulating.

That value could be great because Uber is accumulating vast amounts of data. Statista estimates 95 million people used the Uber app each month between 2016 and 2019.

The great problem is that nobody knows what customers will pay for data. In addition, it is not clear if customers will want or need that data. However, is generating a lot of cash with its ride-sharing business. Uber can use that cash to finance more data collection.

Other companies; including Alphabet’s (NASDAQ: GOOG) Waymo subsidiary and Ford (NYSE: F), have their own data collection efforts. However, those companies’ data collection efforts are puny compared to Uber’s rideshare database.

Uber is an Acquisition Target

Thus one potential fate for Uber is that a company such as Ford, Volkswagen, Amazon, or Alphabet will buy it to get the data. Uber is cheap, it had a stock price of $29.06 and a market capitalization of $49.563 billion on 3 December 2019.

Hence, I think Uber is an acquisition target that Mr. Market overprices. Oddly, I think underpriced automakers; such as Ford, could find Uber attractive. 

For example, Ford could get access to Uber’s self-driving car technology; and data about 95 million riders, by buying Uber. Hence, the data alone could make Uber a great acquisition target. Moreover, Ford could keep the data and technology out of its competitors’ hands.

Why Ford could buy Uber

Meanwhile, Ford (NYSE: F) had $37.331 billion in cash and short-term investments on 30 September 2019.

Thus, Ford has the resources to buy Uber, if its management wishes. Another possibility is that Ford and its partner; Volkswagen (OTC: VLKAF) could buy Uber and divide its assets between them.

Buying Uber could be a smart move for Ford. In particular, owning Uber could boost Ford’s market cap and stock price. Notably, Ford had a market cap of $35.188 billion and a stock price of $8.88 on 3 December 2019.

In the final analysis, Uber could be a great investment for a company such as Ford (NYSE: F) or Berkshire Hathaway (NYSE: BRK.B). Uber (NASDAQ: UBER); on the other hand, is a lousy investment for ordinary people because it loses money.