Over the course of Uber’s remarkable rise — very significant stumbles along the way notwithstanding — it has been more prudent to defend the company’s valuation than to question it. Look no further than the first Stratechery article about the ride-sharing “personal mobility” company, written in response to a 2014 Wall Street Journal column questioning Uber’s latest valuation. The title — Why Uber is Worth $18.2 Billion — holds up well given that Uber is expected to be worth around $100 billion when it prices its stock.

At the same time, to argue you were right based on a company’s private valuation is problematic: that valuation is a proxy for data about the business that simply isn’t available publicly. How much of the valuation is good money chasing bad? How much of the business is dependent on artificially low prices that are subsidized by those private investments? What parts — if any — of the company are leverageable?

Those questions are supposed to be answered by a company’s S-1. Uber’s, not so much.

The Personal Mobility Question

The promise of Uber — the biggest reason to believe that Uber was worth more than a taxi company — is, appropriately enough, how the company leads off its S-1.

We believe that Personal Mobility represents a vast, rapidly growing, and underpenetrated market opportunity. We operate our Personal Mobility offering in 63 countries with an aggregate population of 4.1 billion people. Through our Personal Mobility offering, we estimate that our platform served 2% of the population in these countries based on MAPCs in the quarter ended December 31, 2018. We estimate that people traveled 4.7 trillion vehicle miles in trips under 30 miles in these countries in 2018, of which the approximately 26 billion miles traveled on our platform represent less than 1% penetration.

Uber went on to define its Total Addressable Market as “11.9 trillion miles per year, representing an estimated $5.7 trillion market opportunity in 175 countries.” That, needless to say, is not a small market: it’s about 7% of gross world product, and an even higher percentage if you only measure those 175 countries (Uber cannot enter an additional 20 countries after selling its operations in those countries to competitors). Uber was slightly more modest about its Serviceable Available Market, that is, the countries it is currently operating in (and is not regulatory encumbered): a mere $2.5 trillion market opportunity — $3 trillion if you include those six countries with regulatory restrictions.¹ The company concluded:

We believe that we are just getting started: consumers only traveled approximately 26 billion miles on our platform in 2018, implying a less than 1% penetration rate of our near-term SAM.

Uber has often seemed to function as a parody of startup culture, and this line is no exception: “We only need to get a small share of this very large market” is the most cliché of startup pitches, but that appears to be exactly what Uber is promoting.

And yet, what an alluring pitch it remains! The fundamental idea of paying tens of thousands of dollars (more or less) for a large metal box that sits idle the vast majority of the time, doing nothing but depreciating in value, doesn’t really make much sense in a world where everyone carries Internet communicators that let you call up a ride when — and crucially, only when — you need one. Remember that other classic Silicon Valley cliché — the Wayne Gretzky quote about skating to where the puck will be, not where it is — and the sheer ambition starts to make sense.

The Lyft Question

Of course Uber isn’t the only company chasing this prize: U.S. & Canada competitor Lyft IPO’d a few weeks ago and, despite Lyft’s growth, particularly in the wake of Uber’s self-inflicted disaster that was 2017, Uber should in theory be in a stronger position: it has more share, and more share should mean both more leverage on costs and better liquidity for drivers and riders.

Here’s the problem, though: it’s impossible to tell if theory matches reality. Uber has two major problems in the way they presented data in their S-1:

• First, data from developed and emerging markets are presented in aggregate
• Second, data from Uber ride-sharing and its other businesses, particularly Uber Eats, are also presented in aggregate

Consider the question of how Uber is doing in the U.S. & Canada, the relevant markets for a Lyft comparison: Uber reported $6.148 billion in “Core Platform Revenue”. “Core Platform” means ride-sharing and Uber Eats, and “Core Platform Revenue” is “Core Platform Gross Bookings less (i) Driver and restaurant earnings, refunds, and discounts and (ii) Driver incentives.” Therefore, in order to get a direct comparison to Lyft, it is necessary to separate ride-sharing and Uber Eats.

Unfortunately this is impossible for two reasons: first, while Uber does report separate numbers for ride-sharing and Uber Eats, that number is “Core Platform Adjusted Net Revenue”, which equals “Core Platform revenue (i) less excess Driver incentives, (ii) less Driver referrals, (iii) excluding the impact of legal, tax, and regulatory reserves and settlements recorded as contra-revenue, and (iv) excluding the impact of our 2018 Divested Operations.” Secondly, those numbers are not split out geographically. In short, to understand Uber’s North American ride-sharing business, you need to not only compare apples to oranges, but have to somehow ascertain exactly how many apples and oranges you are talking about.²

The Scooter Question

Meanwhile, 46% of trips in the U.S. are under three miles, and here scooters, e-bikes, and other non-car solutions could impact Uber’s core ride-sharing product, which the company admits:

We believe that dockless e-bikes and e-scooters address many of these use cases and will replace a portion of these vehicle trips over time, particularly in urban environments that suffer from substantial traffic during peak commuting hours…

The introduction of New Mobility products such as dockless e-bikes and e-scooters, which have lower price points than our existing products and offerings, will lower the average Gross Bookings per Trip on our platform.

This is ok, again in theory: Uber’s leading position in ride-sharing should give the company the advantage when it comes to redefining the space from ride-sharing to transportation-as-a-service. The problem, though, is that the S-1 offers basically no details about how this transition is going: is New Mobility growing? What are the cost structures like? Are increased trips making up for cannibalized revenue from ride-sharing?

To be fair, these are very early days for e-bikes and scooters, so the lack of data is understandable. At the same time, a lack of data is turning into a theme.

The Self-Driving Question

One of the biggest existential questions surrounding Uber (and Lyft) is self-driving cars: what happens when drivers are no longer necessary? In fact, it was here that I thought Uber’s S-1 was strongest:

Along the way to a potential future autonomous vehicle world, we believe that there will be a long period of hybrid autonomy, in which autonomous vehicles will be deployed gradually against specific use cases while Drivers continue to serve most consumer demand. As we solve specific autonomous use cases, we will deploy autonomous vehicles against them. Such situations may include trips along a standard, well-mapped route in a predictable environment in good weather. In other situations, such as those that involve substantial traffic, complex routes, or unusual weather conditions, we will continue to rely on Drivers. Moreover, high-demand events, such as concerts or sporting events, will likely exceed the capacity of a highly utilized, fully autonomous vehicle fleet and require the dynamic addition of Drivers to the network in real time. Our regional on-the-ground operations teams will be critical to maintaining reliable supply for such high-demand events.

Deciding which trip receives a vehicle driven by a Driver and which receives an autonomous vehicle, and deploying both in real time while maintaining liquidity in all situations, is a dynamic that we believe is imperative for the success of an autonomous vehicle future. Accordingly, we believe that we will be uniquely suited for this dynamic during the expected long hybrid period of co-existence of Drivers and autonomous vehicles. Drivers are therefore a critical and differentiating advantage for us and will continue to be our valued partners for the long-term. We will continue to partner with original equipment manufacturers (“OEMs”) and other technology companies to determine how to most effectively leverage our network during the transition to autonomous vehicle technologies.

This fits my previous read on the situation: I think that the most likely go-to-market for autonomous cars is via the ride-sharing networks, not as a substitute, and that driver availability and liquidity will continue to be differentiating factors.

That, though, raises two points of concern for Uber. First, while Uber has mostly settled its intellectual property dispute with Google’s Waymo (although Uber may still have to make changes to its autonomous vehicle software), Google has become much more closely allied with Lyft. This is a huge problem for Uber in the long-run if Waymo’s approach ends up winning out (because presumably Google would partner with Lyft to go-to-market at scale), and just as big of an issue in the short-term. Lyft is one of the best ways for investors to bet on Waymo, and the more money that Lyft has, the more Uber will struggle for profitability in the markets in which they compete.

Second, self-driving cars may emerge in markets that Uber cannot enter, like Singapore or China, thanks both to significantly increased density (which is better for ride-sharing in general and for leveraging high cost capital assets in particular) as well as governments more likely to limit the use of personal vehicles. This isn’t a total loss — Uber owns a portion of both Didi in China and Grab in southeast Asia — but whatever financial benefits may result may pale in comparison to the data and experience, leaving Uber vulnerable (neither Didi nor Grab are restrained from entering Uber’s markets).

And, of course, it goes without saying that there is precious little data about how Uber’s self-driving efforts are progressing, or what partnerships it has formed.

The Profitability Question

Unsurprisingly, many folks have fastened onto this risk factor:

We have incurred significant losses since inception, including in the United States and other major markets. We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability.

This is, of course, quite standard, but it does feel particularly pressing given that Uber measures its annual losses in the billions. Unfortunately, it is here that Uber’s S-1 is particularly lacking. We don’t know:

• How much it costs Uber to acquire drivers
• How much it costs Uber to acquire riders
• How much it costs Uber Eats to acquire restaurants
• How much it costs Uber Eats to acquire customers
• What is Uber’s retention rate for drivers
• What is Uber’s retention rate for riders
• What is Uber Eats’ retention rate for restaurants
• What is Uber Eats’ retention rate for customers
• Any sort of cohort analysis of any of the above categories
• Ride-sharing revenue and profitability by geography
• Uber Eats revenue and profitability by geography
• Ride-sharing’s take rate overall and in developed versus emerging markets
• Uber Eats’ take rate overall and in developed versus emerging markets
• Ride-sharing revenue and profitability by time-in-market
• Uber Eats revenue and profitability by time-in-market
• An understanding of driver incentives and how they affect top-line revenue, or how “excess driver incentives” have changed over time
• How costs are allocated, particularly when it comes to rider marketing and incentives
• A breakdown of Uber’s many offerings (Black versus UberX versus UberPool etc.)

This is at best disappointing, and at worst feels like a cruel trick on retail investors: after all of these years, and all of these theoretical arguments about Uber’s potential, all we have are clichés about small pieces of gigantic markets and a heap of numbers that reveal nothing concrete about the business.

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Despite it all, Uber may still be worth the investment: the theory of the company remains plausible, and the company is decreasing its losses (and could do so more quickly if it spun off its autonomous driving unit, as I believe they should). Moreover, I noted above how suitable China and Southeast Asia are for ride-sharing: investing in Uber is the most practical way of investing in ride-sharing everywhere.

However, if I bought individual stocks (I don’t per my ethics policy), I would be out: this S-1 is so devoid of meaningful information (despite its length) that it makes me wonder what, if anything, Uber is trying to hide. If I am going to be taken for a ride I want at least some idea of where I am going — isn’t that the point of Uber in the first place?

I wrote a follow-up to this article in this Daily Update.

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1. Argentina, Germany, Italy, Japan, South Korea, and Spain ↩

2. Financial Twitter mainstay @modestproposal1 put forth a good effort here; I tried for literally hours to come up with something better, but it’s frankly mostly guesswork, exacerbated by the fact that Uber and Lyft handle tolls, taxes, and other government fees differently: Uber includes them in revenue, while Lyft does not ↩