dave_j

https://www.bbc.com/news/business-47871117
Is this the latest bubble?
Is this an immaculate example of a financial black hole?
Is your pension provider about to lose your shirt, after commission of course?
Or.. is there something here that I simply don't understand?

Gordon Barlow

I think your last question is the most sensible one, Dave. It's my question, too, because I also don't understand.

dave_j

It's happening again. A loss making company is about to go public and values itself for a gazillion (50bn) bucks.
https://www.bbc.com/news/business-48127919
Now I'm a professional cynic so I ask myself, 'Why invest your cash in this black hole?'
And of course the only answer that I can come to is that they don't invest they're own money, it's their clients who somehow feel the need to throw it away... never forgetting their commission that is. But.. surely even the mega rich brain dead would be interested to know what that large item in the 'spend' column is, after all, they didn't get rich by burning the green stuff, so what's the story here?
Anyone got any ideas that make sense?

Pulaski

Well it's the same question as for Farcebook, which I don't think has ever made a profit and gives it's services away for free, at least Uber has a fee-generating business model, and so has some basis for having a positive net value, though IMHO not anywhere close to $90Bn!

The thing to remember is that some of these weird tech businesses is that they are not mainstream investments and not a constituent of indices such as the Dow Jones, FTSE 100, the CAC 40 or the DAX, and so your pension funds are safe because little or none of the investment will be in Uber or other highly speculative tech stocks.

I am old-school enough that I am confident that Farcebook will eventually need a dramatic readjustment of its stock value as unlike Amazon, Apple, and Netflix Farcebook doesn't have a business that generates anywhere near enough revenue to support its share price - there isn't enough advertising in the world to support its share price. At least Google has revenue earning services, such as cloud storage, advertising revenue, click-through commissions, and other development projects that will generate revenue eventually.

Back to Uber, I wonder how much of the global taxi revenue Uber would have to take to justify $90Bn capitalization?

hg42

? Facebook's business when you get right down to it is selling ads and behavioural/marketing data. They make a vast amount of money and have ridiculous profit margins - yeah they're not getting more than a few bucks per year for each user, but there's enough of them to pull out double digit billion annual profits and in the grand scheme of things it doesn't cost Facebook very much to do what they do. How sustainable it all is in the really long term is a separate question (hi there, Myspace), and the ethics of being what they are is another, but they clearly have a very functional company in the here and now.

Uber's business is subsidizing peoples' taxi rides because in a decade they might be able to get rid of drivers in places that walk, look and quack approximately like San Francisco - that's the idea, anyway, the reality IMO is that the fundamental principles of the 2010s 'self driving car' thing are too basic and dumb to ever work effectively - and they're desperately casting around for something to do that'll make money because their core business doesn't (because their core business is paying people to take taxis). The whole thing is absolutely howling mad. It's ok though, you just have to Disrupt and have an app then you can collect all the rents automatically.

I think the best thing that can be said for them is that they're at least not unique in pissing money up a wall trying to make a car that does stuff the otherwise unoccupied person in the car could do?

dave_j

I'm not religious and I tend to believe in those things for which I can see factual evidence.
This aspect of human nature involves faith, ie an idea that you don't need evidence to believe something if that belief is strong enough.
So when Uber floats and the price falls only a little valuing a loss making company at about $80 billion, that's $80000000000.00 you have wonder whether you've been drinking enough wine.
Now I can understand why Uber was floated, I can understand why, given the history of the IPO instant profit gravy train, Uber shares were hoovered up. What I can't understand is why, when the dust has settled a little, investors keep shoveling cash into this black hole.
I think it's like the argument for religion, a faith in the market that all will come good and they'll end up with a healthy profit. To put it bluntly it's a faith that there are loads out there who're more of an idiot than you are and they'll keep the price going up, up, up. But perhaps since the price fell, faith was in short supply, unlike Uber shares,
Faith like this kept the stock market rising, right until October 29 1929 and on that day faith took a hard knock.

Shard

Facebook's business is owning data (and its social network). That data will be the foundation for future AI products and services. Google is of course in the same game, though by a different means. In Uber's case, again it's in future infrastructre for AV and AV delivery systems. Admittedly, the valuation of these stocks is purely on market sentiment.

bc2015

?????

In Q4 2018, Facebook had net income of $6.88 billion. In Q1 2019, Facebook had net income of $2.42 billion because it set aside $5 billion to pay for an expected FTC fine. It's an extremely profitable business operating with huge margins.