Mad Hedge Technology Letter
August 11, 2021
Fiat Lux
Featured Trade:
(HIGHER HIGHS FOR THE NASDAQ?)
(UBER), (DIDI), (BABA), (COIN), (HOOD), (SFTBY)
Posts
The blowback from the Chinese tech crackdown has been quite tough to take for Softbank (SFTBY) because of the decision to maneuver deeply into Chinese tech shares.
It looked good at the time, as China was the center of every Wall Street analyst’s growth proposition short and long term.
However, troubles in China crystallize the massive shift of deglobalization and many investment funds are finding a new world as we turn the page.
Gone are the days when aggressive investors could just dabble in all sorts of exotic markets believing that globalized forces would be a wind at its back.
So much so that nobody ever batted an eye if you told them you had investment theses playing out in Mongolia or Brazil.
Emerging markets are blowing up and now even the passport with which you do business has never been more prominent.
Rich countries are going the way of Europe – that of intense and mind-numbing regulation to make up for a shortage of tax revenues to pay for these costly programs.
The global canary in the coal mine can be traced back to Alibaba’s founder Jack Ma effectively being muzzled by the Chinese Communist Party. This was the nail in the coffin for the China story as it relates to foreign money waterfalling in the Middle Kingdom.
That’s the end of it.
Softbank will need to go back to the drawing board and probably pluck China off the board as top dog and reset their draft board.
The pain is now being found in Softbank’s balance sheet with net profit down 40%.
Let’s look at some of Softbank’s investments which include Chinese e-commerce giant Alibaba (BABA), car-share giant Didi Global (DIDI), and short-video app TikTok owner ByteDance Ltd.
Around 35%-40% of Softbank’s investments are tied up in China and its net profit is down to 761.5 billion yen, equivalent to $6.9 billion.
The incremental buyer has dried up and Softbank is now saddled with an illiquid Chinese tech portfolio they can’t get rid of.
Softbank founder Mr. Son said that SoftBank’s shares have fallen so low that the price is now only around half of the value of the company’s assets, after subtracting debt. Given that discount, SoftBank will unveil more share buybacks at some point, and is now discussing the timing and size.
He also said that SoftBank will continue the furious pace of investment at Vision Fund 2, which has stakes in 161 companies and has been funding startups at a rate of nearly one per day in recent months.
SoftBank’s new investment in pharmaceutical company Roche Holding AG signals that the Japanese company might resort to safer stocks with stable free cash flow.
Compounding the situation might be that Softbank feels that they have been burnt by tech investment one time too many.
The ripple effect of China tech going down affects their assets as a whole and have concluded that the balance sheet needs trimming and re-upping.
Even if Softbank can find some balance sheet rejuvenation - they no longer feel they can take these extraordinary tech risks that achieve high beta which is required to satisfy investors.
Overall, we could be dealing with a dearth of real, legitimate tech opportunities in proven business models which could be a reason for Softbank rotating into sectors like pharmaceuticals.
No doubt I believe they will keep their eye out for tech opportunities, but they aren’t set on it from the beginning like the past 2 decades.
Or perhaps, this could be the segue into riskier investments than before - remember Uber (UBER) was a company that no VC wanted to touch with a 10-feet pole and Softbank took it on and made a lot of money. but where is the next Uber after Uber?
It's possible that there are no real, transformative companies in the pipeline after the Coinbase (COIN), Robinhood (HOOD) IPOs, these investments usually take 10-20 years to take profits from the initial seed funding.
It could also signal further advancements into the derivatives market with the company looking for leverage bets instead of holding vanilla equities and standard ETF index funds.
Their foray into derivate exposure gave them the nickname the “Nasdaq whale” when the company bought a torrent of call options profiting in the billions from the tech lurch up.
Even retail traders have gotten into options with their profit possibilities which are able to surpass any equity trade that only have a 2:1 leverage ratio.
Softbank could be finding tech too overvalued and looking to jump short-term into another industry almost like a day trader, although tech, for them, is something that is a long-term core objective.
We can analyze this whichever way we want but its meaning is clear – the low hanging tech fruit is gone, and it will be harder to fight for your crust of bread even much so that the Nasdaq whale is looking into morphing into the S&P whale or a different type of whale all together.
I can tell you that deep down in the weeds as a trader, I am seeing a rapidly evolving rotation that has rewarded cyclicals that are back from the dead and financials that are breaking out benefiting from the massive amount of stimulus deposits.
We need to acknowledge that the consumer is currently in the best health of our lifetime because of the free payouts, PPP loan forgiveness, and other goodies. And that doesn’t necessarily mean that tech will go up in the short-term as we skim all-time highs.
Technical charts still look positive for tech, but it is true that the sector has cooled off even if the trend will be higher long-term. It’s getting that much harder to eke out higher highs in the Nasdaq.
Mad Hedge Technology Letter
August 6, 2021
Fiat Lux
Featured Trade:
(IS IT TIME TO GET BACK INTO UBER?)
(UBER)
I dig it that Uber has larger data sets than anyone else in a world where bigger is better in terms of data.
What they have is ultimately uber valuable in the modern day of data being the new oil.
This advantage is precisely why Uber is able to train an in-house algorithm better than the next guy.
Global reference points are what every company these days lust for.
Matching and routing an incentives marketing engine that is highly personalized is an existential issue for ride-sharing giant Uber.
When you parlay their data edge with possessing op teams on the ground in every single market and understanding of the regulatory marketplace as well, it means per unit, Uber’s overheads are way lighter than competitors.
It all translates into cost of customer acquisition being lower and a higher lifetime value because of the higher frequency accounts that they have with customers.
You could almost say that in this particular industry, it’s a game of who can outdo one another in customer acquisition unit cost.
Beating on cost is a must because Uber has all these unprofitable businesses and when it comes down to it, they are a glorified delivery driving service.
They must acquire to scale out because that’s the only hope they have to become profitable by wielding the economies of scale advantage.
Uber’s Grocery division is off to a great start internationally and at home in the U.S., Instacart is a strong competitor.
So I do believe they face a steep uphill climb to get anywhere near Instacart who has had skin in the game forever.
But when we get into the weeds, Uber’s short-term direction will clearly be driven by the supply of drivers or the lack of them for a reasonable price.
In July, new driver additions on Uber in the U.S. grew 30% month-over-month. That's right, 30% month-over-month even as they pulled back on incentives and improved margins. As investments taper, Uber expect mobility to show strong leverage in the back half.
Management tried to gloss up results but Uber had spent a massive $250m in driver incentive investment in the second quarter, which increased losses at its ride-hail business.
I mentioned at the top that Uber’s model is about low-quality tech married with scale, thus, there’s no way to justify spending $250m in one quarter to find drivers.
The dearth of drivers came about because of incremental government stimulus, lack of child care services, unemployment subsidies, even preventative virus concerns, or simply some drivers just died of corona.
Not only is data the oil for Uber, but in that oil, one massively important input is the cost of acquiring drivers.
For management to be so behind the curve on this one shows a degree of unpreparedness.
Granted, it’s been quite difficult for any tech management to get a hold of the new tech trends post-pandemic, but that’s what they are paid to do.
Shares of Uber have tanked around 30% since mid-February this year speaking volumes to management lack of execution in supplying the volume of drivers.
I know it’s not a simple one-day smash and grab to get drivers.
We are talking about marketing, onboard costs, background checks, vaccinations, promotions, registration process and education.
This isn’t all free.
I would hope that as we approach 2022, those costs become less of a burden.
But it does go to show that for Uber, the honeymoon period is long gone and even the low-hanging fruit area doesn’t exist anymore.
We seem to have entered a phase of chronic underperformance met with a finite period of overperformance the only to shift backwards again and repeat the same cycle over again.
As we look at the rest of 2021, the driver acquisition marketplace is unhealthy and wait times are up big causing surge pricing to make Uber a pricy service.
I don’t see that moving significantly down by end of 2021, but this specific headwind will moderate which is good for the stock.
A little bit more regionally, a bunch of cities, southern cities are actually back to normal and it’s about putting dollars in front of drivers and the top 20 cities, drivers for mobility are making over $40 an active hour, including just earnings and tips as well.
I will tell you - this company has no chance to become profitable if they are doling out a median wage of $40 per hour.
It’s a fool’s game.
Even if you want to get “leaner”, I don’t see where the cost savings will come from unless they want to gut the corporate staff or cut back on the technology.
That’s not to say they will even be able to retain drivers who might get better offers in different industries and never consider driving an Uber again.
I mean honestly, being an Uber driver isn’t exactly a desirable job for most people unless you have no skills or no better options.
Everyone wants to work at home from a desk and computer where they can brew their own coffee and not commute. Being a driver is a job where you are in perpetual commute!
And if less skilled workers are being paid to stay home with an eviction moratorium so they don’t have to pay rent or a mortgage forbearance, so they don’t need to leave home, then it’s gotten so bad that Uber is paying $40 per hour to move the needle.
Regional cities have recovered but driver supply problem is acute in major cities like New York, San Francisco and L.A. with demand continuing to outplay supply and prices and wait times remain above comfort levels.
When this happens, customers stop using your service and for a company that relies on high volume, it couldn’t be more than terrible.
It means Uber doesn’t get paid when people are clamoring for their service.
I just don’t see Uber going into other markets and burning more cash to stay relevant because they are too mature of a company.
They are running out of gunpowder in 2021 and will expect to pump out the profits soon.
To profit means outperformance and Uber hasn’t delivered more than the dead cat bounce of the economy reopening which is a little pitiful.
I made a bullish call earlier this year which was correct at the time but then Uber hit a wall at $65 and has come back down with vengeance.
I can say that at $43 today, the stock will rise if Uber’s management can trim the $40 per hour they are paying drivers today while increasing driver headcount by 30% quarter over quarter.
I believe Uber’s management will be successful at bringing down driver costs.
It’s easy to see how they go down from here, and I do believe that the bad news is priced into Uber shares, and that many of these headwinds were transitory and the outlook will improve moving into 2022.
Even though I forecast the stock going up in the short to midterm, I still believe at some point, the company will need to come to terms with having no cutting-edge technology and no moat around its business model.
That issue has been lying dormant but that doesn’t mean it has gone away.
Just think about it, if Amazon or Google wanted to do what Uber does, they could figure it out in months, but they don’t see any value in this profit model.
Uber is definitely on the clock and that’s not a good thing for their management.
Global Market Comments
June 18, 2021
Fiat Lux
Featured Trade:
(JUNE 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(MS), (XOM), (FXI), (MSFT), (AMZN), (FB), (GOOGL), FCX), (CAT),
(GLD), (DIS), (GME), (AMC), (UBER), (LYFT), (TLT), (VIX)
Below please find subscribers’ Q&A for the June 16 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.
Q: Does Copper (FCX) look like a buy now or wait for it to drop?
A: I would buy ⅓ now, ⅓ lower down, ⅓ lower down still. Worst case we get down to $30 in Freeport McMoRan (FCX) from $37 today. A new internal combustion engine requires 40 lbs. of copper for wiring, but new EVs require 200 lbs. per car, and the number of EV cars is about to go from 700,000 last year to 25 million in 10 years. So, you can do the math here. It's basically 24.3 million times 200 lbs., or 1.215 billion tons, and that's the annual increase in demand for copper over the next 10 years. There aren’t enough mines in the world to accommodate that, so the price has to go up. However, (FCX) has gone up 12 times from its 2020 low and was overdue for a major rest. So short term it's a sell, long term it's a double. That's why I put the LEAPS out on it.
Q: Lumber prices are dropping fast, should I bet the ranch that it’ll drop big?
A: No, I think the big drop has happened; we’re down 40% from the highs, the next move is probably up. And that is a commodity that will remain more or less permanently in short supply due to the structural impediments put into the lumber market by the Trump administration. They greatly increased import duties from Canada and all those Canadian mills shut down as a result. It’s going to take a long time to bring those back up to speed and get us the wood we need to build houses. Another interesting thing you’re seeing in the bay area for housing is people switching over to aluminum and steel for framing because it’s cheaper, and of course in an earthquake-prone fire zone, you’d much rather have steel or aluminum for framing than wood.
Q: I didn’t catch the (FCX) LEAP, can you reiterate?
A: With prices at today's level, you can buy the 35 calls in (FCX), sell short the 40 calls, and get nearly a 177% return by January 2022. That's an absolute screamer of a LEAPS.
Q: How do you see the working from home environment in the near future after Morgan Stanley (MS) asked everyone to return?
A: Well that’s just Morgan Stanley and that’s in New York. They have their own unique reasons to be in New York, mostly so they can meet and shake down all their customers in Manhattan—no offense to Morgan Stanley, but I used to work there. For the rest of the country, those in remote places already, a lot of companies prefer that people keep working from home because they are happier, more productive, and it’s cheaper. Who can beat that? That’s why a lot of these productivity gains from the pandemic are permanent.
Q: Is there a recording of the previous webinar?
A: Yes, all of the webinars for the last 13 years are on the website and can be accessed through your account.
Q: What makes Microsoft (MSFT) a perfect-looking chart?
A: Constant higher lows and higher highs. They also have a fabulous business which is trading relatively cheaply to the rest of tech and the rest of the main market. Of course, they were a huge pandemic winner with all the people rushing out to buy PCs and using Microsoft operating software. I expect those gains to improve. The new game now is the “wide moat” strategy, which is buying companies that have near monopolies and can’t be assailed by other companies trying to break into their businesses. The wide moat businesses are of course Microsoft (MSFT), Amazon (AMZN), Facebook (FB) and Alphabet (GOOGL). That's the new investment philosophy; that's why money has been pouring back into the FANGs for a month now.
Q: Do you have any concerns about Facebook’s (FB) advertising ability, given the recent reduction of tracking capabilities of IOS 4.5 users?
A: Well first of all, IOS 4.5 users, the Apple operating system, are only 15% of the market in desktops and 24% of mobile phones. Second, every time one of these roadblocks appears, Facebook finds a way around it, and they end up taking in even more advertising revenue. That’s been the 15-year trend and I'm sticking to it.
Q: Is Caterpillar (CAT) a LEAP candidate right now?
A: Not yet, but we’re getting there. Like many of these domestic recovery plays, it is up 200% from the March lows where we recommended it. The best time to do LEAPS is after these big capitulation selloffs, and all we’ve really seen in most sectors this year is a slow grind down because there's just too much money sitting under the market trying to get into these stocks. Let’s see if (CAT) drops to the 50-day moving average at $185 and then ask me again.
Q: If you have the (FCX) LEAPS, should you keep them?
A: I would keep them since I'm looking for the stock to double from here over the next year. If you have the existing $45-$50 LEAPS, I would expect that to expire at its max profit point in January. But you may need to take a little pain in the interim until it turns.
Q: Should I bet the ranch on meme stocks like (AMC) and GameStop GME)?
A: Absolutely not, I’m amazed you haven't lost everything already.
Q: Do you think Exxon-Mobile (XOM) could rise 30% from here?
A: Yes, if we get a 30% rise in oil. We are in a medium-term countertrend rally in oil which will eventually burn out and take us to new lows. Trade against the trend at your own peril.
Q: Disneyland (DIS) in Paris is set to open. Is Disneyland a buy here?
A: Yes, we’re getting simultaneous openings of Disneyland’s worldwide. I’ve been to all of them. So yes, that will be a huge shot in the arm. Their streaming business is also going from strength to strength.
Q: How long will the China (FXI) slowdown last?
A: Not long, the slowdown now is a reaction to the superheated growth they had last year once their epidemic ended. We should get normalized growth in China at around 6% a year, and I expect China to rally once that happens.
Q: Have you changed your outlook on inflation, real or imagined?
A: I don’t think we’re going to have inflation; I buy the Fed's argument that any hot inflation numbers are temporary because we’re coming off of a one-on-one comparisons from when the economy was closed and the prices of many things went to zero. If you look at that inflation number, it had trouble written all over it. Some one third of the increase was from rental cars. One of the hottest components was used cars. You’re not going to get 100% year on year increases next year in rental or used cars.
Q: When you issue a trade alert, it’s always in the form of a call spread like the Microsoft (MSFT) $340-$370 vertical bull call spread. What are the pros and cons of doing this trade on the put side, like shorting a vertical bear put spread?
A: It’s six of one, half a dozen of the other. There are algorithms that arbitrage between the two positions that make sure that they’re never out of line by more than a few cents. I put out call spreads because they’re easier for beginners to understand. People get buying something and watching it go up. They don’t get borrowing something, selling it short, and buying it back cheaper.
Q: Will gold (GLD) prices go up?
A: Yes, when inflation goes up for real.
Q: What is the future of the gig economy? How will that affect Uber (UBER) and Lyft (LYFT)?
A: I like both, because they just got a big exemption from California on part time workers, and that is very positive for their business models.
Q: Do you think the government doesn’t want to cancel student debt because it will unleash inflation?
A: It’s the exact opposite. The government wants to forgive student debt because it will unleash inflation. If you add 10 million new consumers to the economy, that is very positive. As long as former students have tons of debt, horrible credit ratings, and are unable to buy homes or get credit cards, they are shut out of the economy. They can’t participate in the main economy by buying homes, shopping, or getting credit. The fact that the US has so many college grads is why businesses succeed here and fail in every other country. That should be encouraged.
Q: Where is the United States US Treasury Bond Fund (TLT) headed?
A: Short term up, long term down.
Q: Options premiums are not melting away much today; I hope they start decaying after the Fed announcement.
A: In these elevated volatility periods—believe it or not, the (VIX) is still elevated compared to its historic levels—they hang on all the way to the very last day, before expiration, before they really melt the time value on options. It really does pay to run these into expiration now. When the VIX was down at like $9-$10, that was not the case.
Q: I bought a short term expiration going long the (TLT) to hedge my position; was this smart?
A: Yes, but only if you are a professional short-term trader. If you are in front of your screen all day and are able to catch these short term moves in (TLT), that is smart. My experience is that most individual investors don’t have the experience to do that, don’t want to sit in front of a screen all day, and would rather be playing golf. Such hedging strategies end up costing them money. Also, remember that half of the moves these days are at the opening; they’re overnight gap openings and you can’t catch that intraday trading—it’s not possible. So over time, the people who take the most risk make the most money. And that means the people who don’t hedge make the most money. But you have to be able to take the pain to do that. So that’s my philosophy talk on risk taking.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trade
Mad Hedge Technology Letter
April 26, 2021
Fiat Lux
Featured Trade:
(BUY OR SELL DOORDASH?)
(DASH), (GRUB), (UBER)
As the work from home economy de-levers, the biggest loser of this trend will be the food delivery company DoorDash (DASH).
As the stock rallied last Friday by 6% into the close, I couldn’t help but think to myself that it is a great time to short the stock.
Considering that total sales grew close to 400% last year but the stock is lower, this basically means that DASH couldn’t deliver what shareholders wanted in a historic year for most tech companies.
What makes anyone think that 2021 will be different?
Imagine what the next phase of development looks like, quite bleak.
The health crisis unlocked a tsunami of growth for many emerging and unprofitable technologies.
Software and hardware companies were clear beneficiaries of economic lockdowns that triggered a boom in the food delivery industry.
With nowhere to eat out at, the business of eating a prepared meal was effectively handed to DoorDash on a silver spoon.
Despite this powerful tailwind, the company still failed to deliver positive earnings amid additional expenditure such as marketing.
As the pandemic navigates towards a solid solution and consumers return to restaurants, DoorDash will be left holding the bag.
First, let me say, DoorDash’s operating narrative is weak.
They earn revenue by taking a percentage of restaurant sales on its platform.
A glorified pizza delivery boy at scale is what they really are.
They describe sales as marketplace gross order value or GOV which totaled $24.66 billion in 2020 — a 326% increase over 2019.
In short, it's the total amount of money that DoorDash users paid for food.
For context, this metric grew 187% in 2019 compared to 2018, but off a much lower base from $2.8 billion and now project marketplace GOV in 2021 in the range of $30 billion to $33 billion, which is a substantial deceleration in growth rate from 2020.
The bottom line is they are still losing around the same amount of money with no solution in sight.
The next steps of the global economies are to open further, with fewer people staying home and using food delivery, so the question is whether the DoorDash marketplace will grow at all this year.
Despite a record 2020 that more than quadrupled the company's revenues, it is becoming clear that DoorDash will not even be close to profitable.
It appears DoorDash's growth in costs tracked closely with growth in revenue, in dollar terms, leading to net losses that only marginally improved.
The main thesis of these gig economies is that they become incrementally profitable at scale, but DoorDash’s financials suggest it isn’t.
I would like to hear what the next way forward is, but the firm is essentially a one-trick pony in a hopeless industry.
If interests tick higher and regulation toughens, this stock will get hit hard.
There are too many tech firms in the food delivery space and consolidation will force management’s hand.
Uber Eats is the reason that DASH won’t be able to raise prices.
DoorDash holds an advantage with 55% of the US market, but both Uber Eats (at 21%) and GrubHub (GRUB) (at 16%) have made aggressive acquisitions to help them grab market share.
All of these companies often mirror age products with no differentiation.
It is a very homogenized product.
Uber Eats has the largest global footprint in the industry, with a higher overall gross order value that hit record levels in 2020, yet that company loses money like DASH.
GrubHub also delivers the same terrible unit economics that DASH does, giving investors higher revenue but marginal margin improvements and profitability.
Companies that cannot become profitable when 4X their revenue need to be overlooked and this statement could cut across all industries from energy to retail.
Imagine that Dash also couldn’t improve unit economics when gas prices cratered as well.
It appears that Dash will have most external forces working against them for the rest of the year and this is a great stock to sell rallies on.
The initial peak of $230 could well become the peak for this stock and the current share price is 1/3 lower, but I believe a fair market cap would be half the peak of $230 in 2021.
Mad Hedge Technology Letter
April 14, 2021
Fiat Lux
Featured Trade:
(A 2021 TECH DARLING)
(UBER), (LYFT)
Uber (UBER) is a solid tech investment for the remainder of 2021, and this is me saying that when I don’t even like their company business model.
The biggest gap up in shares usually occurs when a company goes from flat-out terrible to the level just above that and that’s what is happening to Uber in 2021.
Why have they been so bad lately?
Uber’s Mobility gross bookings, or ride-sharing revenue, was $6.8 billion, which was down 47% year on year and revenue of only $1.5 billion.
Uber was never profitable, to begin with, not even close, and for COVID to gut their main business in 2020, investing in shares became even less appetizing.
Or were they?
Ironically enough, the California ride-sharing company was able to compensate during the pandemic by delivering food, a very non-tech type of business.
Delivery revenue of $1.4 billion, up 220%, significantly outpaced gross bookings growth and delivery revenues take rate was 13.5%, up 391 basis points year on year and up 21 basis points quarter on quarter.
Not only did the delivery revenue become almost equal to its ride-sharing revenue in such a short time span, but their “take rate” nudged up which is measured as the percentage of what they accrue from each $1 in delivery.
The momentum allowed Uber to triple its shares from March 2020 lows on the back of a reinvigorated delivery service, trillions of printed money, and a broad-based rally that swept up Uber.
Trust me, Uber doesn’t own any worthwhile intellectual property that is going to differentiate itself from the competition, but they are part of a duopoly with Lyft (LYFT) that makes 2021 so intriguing.
Reading the 2021 tea leaves, it's hard not to love this company as tourism, outdoor mobility, and intercity mobility will reverse and people will start paying uber for rides to go to bars and house parties.
Uber indicated just that with a teaser report before the real earnings come out showing that total gross bookings as of March 2021 reached the highest monthly level in the company's nearly 12-year history.
Mobility posted its best month since the pandemic started in March 2020, passing a $30B annualized gross bookings run rate. Average daily gross bookings were up 9% month-over-month.
Delivery set another all-time record, crossing $52B annualized gross bookings run rate in March, up over 150% on the year.
Uber says the rideshare business recovery and continuing Eats demand have customers outpacing the number of drivers and couriers.
The company ended the Form 8-K on a down note, letting investors know that after a court order, Uber must reclassify UK drivers as employees.
The company expects to record a “significant accrual” due to higher British employment costs in Q1 with the majority expected to reduce total and mobility revenues and revenue take rates but will be excluded from adjusted EBITDA results.
I must say that it’s quite irresponsible of management to just slide this “significant accrual” off the balance sheet as it could turn into something major if other big markets similar to London force Uber to reclassify workers as employees.
This is by far the biggest risk moving forward in 2021, but I doubt that other European locales will have the balls to say no to Uber.
Management reiterated that they remain on track to turn the EBITDA profitable in 2021, but then again, the EBITDA is quite substantial which is a management trick that needs to be banned in corporate America.
I believe that management keeps moving the goalposts by trying hard to please the incremental investor with alternative metrics, but that doesn’t take away from the immense potential of the back half of 2021.
Uber is poised to seriously outperform as people have been quarantined inside for over a year now and are waiting to explode out of their front door.
The company has burnt through over $15 billion in cash since 2019 and the stock has tripled, after stripping out a decline in food deliveries later this year, I believe the strength in rideshare revenue will end up with Uber having some quite rosy numbers.
Call it a net positive after you minus out the delivery revenue which is poised to shrink in the latter half of the year.
Thus, I will stamp Uber with a short-term and medium-term conviction buy, but a long-term sell because I just don’t see a pathway yet to become a heavy hitter, and Uber’s accounting gimmicks are a red flag.
