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Is Driver Strike Ahead Of Uber's IPO A Sign Of Things To Come?

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Is Driver Strike Ahead Of Uber's IPO A Sign Of Things To Come?

A strike by ride-hailing drivers two days ahead of Friday's unveiling of the most anticipated IPO in recent memory is just one sign of trouble ahead for Uber. It could also lead investors to conduct their own strike on ride-hailing stocks.

"I don’t think it portends well for either company as a publicly traded stock when the key part of your workforce is dissatisfied enough to be talking about going out on strike, even if it is in the sense of making a statement,” Jeff Yastine, editor of Total Wealth Insider and Insider Profit Trader at Banyan Hill Publishing, told Benzinga.

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'Bleeding Cash'

The strike is another black eye for the ride-hailing industry on arguably its biggest week ever —and a day after Lyft Inc (NYSE: LYFT) reported big losses in its first-ever earnings report as a public company. Lyft shares were down 10.8 percent at Wednesday's close.

Yastine recommends staying away from both companies.

“It points to the weaknesses in both companies in that neither one has ever been profitable, Uber has been bleeding cash and I don’t think they ever will be cash flow positive," he said.

In Yastine's view, Uber and its venture capitalists see the window closing for excitement surrounding new platform-type businesses.

"[They] want to make sure they can get liquid and make public shareholders deal with it later."

Yastine Says Amazon Comparison Flawed

Uber is a tremendous brand name, and if after 10 years it cannot be cash flow positive, that is a gigantic red flag, Yastine said.

While investors may equate Uber to Amazon.com, Inc. (NASDAQ: AMZN), which essentially got a free pass from investors for its unprofitable ways for years, Yastine said there's a key difference: Amazon was cash flow positive in the 1990s, and Uber "just keeps burning cash."

Uber is a service business that provides transportation to customers, and there is no moat away from competition, Yastine said.

“It’s not the type of business that can be a big deal, not unless they can bring in these robo-taxis immediately. If the time frame is five to 10 years — well then, that is a long time for investors to wait.”

Watch The Lockup Expiration

What might the trajectory of Uber’s IPO look like? The stock will likely have a nice pop and will probably be strong for a few weeks and possibly a couple months, Yastine said.

“It also depends on when the lockup period expires. When that ends, insiders all start selling the stock. That is especially the case with the more hyped IPOs; the day of the public offering is the day it is most overpriced."

All in all, Yastine calls Uber a great idea for a stock, but not a great stock.

“Great stocks generate cash flow, and Uber does not do that by any means.”

Related Links:

Opinion | The Risks Facing Uber Ahead Of Its IPO

Lyft Analysts Largely Bullish As Quiet Period Ends

Photo courtesy of Uber.

Posted-In: Banyan Hill PublishingNews Previews IPOs Top Stories Exclusives Trading Ideas Interview Best of Benzinga

 

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