Author Topic: Can Uber Ever Deliver? Is Morningstar’s Horrendously Bad Uber Analysis - 8/18  (Read 95 times)


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Before you read the entire article please keep a few things in-mind:

The article was posted August 13,2018

Morningstar's research and recommendations are considered extremely influential in the asset management industry, and a positive or negative recommendation from Morningstar analysts can drive billions of dollars into or away from any given fund.

In July 1999, Morningstar accepted an investment of US$91 million from SoftBank in return for a 20 percent stake in the company. The two companies had formed a joint venture in Japan the previous year.

SoftBank Group Corp.
The Japanese venture fund became Uber’s biggest investor last December, when it snapped up a 15% stake in the company for a funding round of $7 billion. Softbank (SFTBY) invested $1.25 billion at a $70 billion valuation for Uber and picked up shares from earlier investors at a discounted $48 billion valuation.

Morningstar’s report is potentially valuable to Uber because it allows them to claim that “independent” analysis by an “objective” financial firm endorsed the idea that Uber’s is worth more than $100 billion, and that claims Uber is likely to make during the IPO process have been independently verified.

For its entire history, Uber has gone to considerable length to evade public scrutiny of its black hole of losses and the dependence of its business on massive, and ultimately unsustainable investor subsidies, most importantly by presenting only fragmentary financial data that is largely non-comparable over time. Uber has succeeded nevertheless in using talking points that plays heavily on Silicon Valley mythology and libertarian gospel to create the impression that it is a highly successful venture. Uber is likely to rely heavily on PR and propaganda to convince investors it is worth over $100 billion.

Despite numerous attempts over nine years, Uber has never successfully leveraged its car service position into any other businesses. Many of its attempts to expand ridesharing overseas have been spectacular failures.
If investors realize that Uber’s economics are far worse than what past press coverage led them to believe and its current performance is totally inconsistent with claims that its equity will appreciate beyond its target $100 billion value, Uber will face an enormous crisis. If IPO investors would accept only a substantially lower valuation, many current investors would lose money. Perhaps even more important, the bubble of favorable Uber publicity would burst, as Uber’s claims could no longer be taken at face value.

One of Uber’s greatest strengths is its ability to construct and promulgate a very positive public image. This image is divorced completely from Uber’s performance because the company has successfully gotten the press and public to accept the sort of narratives commonly used in political campaigns. They rely heavily on emotive language to obscure agendas, distract attention from contrary arguments, and conceal the lack of factual support.

Morningstar did not include detailed historical Uber financial data. But its report covered everything else that a future Uber IPO prospectus would.

A review of the Morningstar paper quickly answers the central question. There is no way that an honest, rigorous financial analysis could reconcile actual Uber economics with the need to justify the $100+ billion valuation that Uber’s current owners need.

It is not obvious as to why Morningstar chose to publish an Uber IPO valuation estimate a full year before they go to market, although the report would seem to be highly useful for Uber as its builds its own valuation PR/propaganda narrative.
« Last Edit: October 20, 2018, 03:03:58 PM by YELLO »