Originally published at: http://boingboing.net/2016/08/06/how-and-why-to-short-uber.html
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Just watched the Big Short movie again and one of the things that struck me on second viewing was how risky a short position really is - even if you have complete confidence in your decision. A short position is not only a bet against the thing you’re shorting but also involves careful timing which nobody can predict. Investors are required to pay premiums on their positions so while you’re waiting for the market to tank, you’re basically paying into it for an unknown period of time.
Shorting Uber seems like a sound idea. Their business practices are suspect and they are wildly overvalued. But I wouldn’t be so confident that they are headed into the basement anytime soon.
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Or as Keynes said, “Markets can remain irrational longer than you can remain solvent.”
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Well thank goodness, from the headline I thought it was about shorting the driver. Shorting the stock is perfectly ethical, and sounds like a good idea. Is it publicly held?
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No, and there is no real way to short it, unless you can convince someone to create a derivative based on some of the loans and bonds that convert to Uber shares on maturity. The article discusses several ways you might be able to short Uber, but concludes that none of them are really available. It’s quite a good read.
It might be fun to short it at an IPO if and when they do one, though. Right now, by essentially not allowing shares to be sold, they can keep a lot of information to themselves, and the illusion of immense worth afloat.
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I don’t think most of us are in a position to actually make money by shorting Uber, as tempting as it is. If nothing else, Uber is so focused on market expansion that they are still not really profitable. More seriously, whenever possible, drivers prefer Lyft, because Uber is note for jerking drivers around. It’s impossible to tell what one is going to make if one takes a drive, the percentage varies too randomly.
Most drivers I run into are logged into Uber and Lyft, with Lyft calls taking precedence. It might be possible for Uber to get drivers to use them exclusively, but they’d have to spend money. Threats and penalties would only further alienate the drivers. As long as there is one other service around that offers even a better deal or interface for drivers, Uber is at risk. I expect them to start trying to buy ride call monopolies any day now.
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On the other hand, Uber will “succeed” if investors deem it to have succeeded, which they may do for reasons having nothing to do with valuation, market share, cars, drivers, passengers, or anything else a disinterested observer might think are relevant. All those “sub-bets” paying off are one way to cover its loans, not the only way.
I’m not saying these guys are wrong; just that, y’know, it’s complicated.
EDIT: @heckblazer said it more succinctly.
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Shorting it or not, uber will disintegrate shortly after its pre-planned IPO.
Cory,
You might want to read up on the history of Snapple. An analysis much like yours was quite correct for this stock market darling ofthe 90’s. No matter. An acquirer came along anyway and caused large losses for the short sellers.
Valuation arguments like yours make giant losses for short sellers all the time. Every hear of a company called Amazon?
To make money from shorting, it’s not enough to be “right.” A short seller has to be “right” at the right time, which is much harder.
Also, there needs to be a way to actually short the company, which there isn’t for Uber at the moment.
BTW giving stock market advice in a public forum is risky in its own right. Have you talked to your lawyer about “safe harbor” provisions?
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My feelings on Uber are complicated (though, getting less complicated every day). Where I’m living now (San Jose, Costa Rica), there’s scheduled to be a large taxi strike tomorrow that will likely cripple the entire city. They are protesting Uber siphoning off their business. But, the taxi drivers are not making any friends doing this.
I feel bad for the taxi drivers. I do. But, the prices to take an Uber are literally (not figuratively) half and the service is way better. The drivers that I speak with typically Uber as a secondary source of income and are generally pleased with it.
I know this comment is a bit off topic for this thread, but the question of whether or not to Uber in Costa Rica has been answered. Answered, at least until another competitor enters the market. I wouldn’t be so fast to short the company.
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Uber is generally better than taxis in most Latin American countries. I don’t even bother with “official” taxis in Mexico City or Bogota anymore because they are absolutely terrible. I’ve always had good Uber experiences albeit sometimes slow because they are always in demand.
I mean, there’s always the old-fashioned way of just turning to your friend who isn’t a boingboing reader and saying “I bet you $100 Uber wont make it to Christmas…”
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The problem with actually taking a short position is that it turns “I strongly suspect that Uber’s mid to long term prospects are vastly worse than their current valuation would suggest” (a statement I wholeheartedly agree with for a variety of reasons) into “I am betting a nontrivial amount of money that their stock will have cratered by at least this much on this date”.
I have considerable confidence in my skepticism about Uber’s prospects; but I have absolutely no idea when they will run out of optimists; and that is what I really need to know if I want to bet on their stock price.
Well, after a day of striking, the score is Uber: 1, Taxis: -7. While the taxi drivers blocked the road and generally caused mayhem and sent 7 police officers to the hospital, Uber was offering $2 rides all day. An excellent PR move by Uber. Taxi drivers, not so much.
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