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Lyft and Uber have no coherent business model or prospects

Posted by John T. Reed on

Further evidence of the idiocy of Main Street investors: The Lyft IPO indicates that company is worth $26.5 B.
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The following phrase appeared in the WSJ 3/30/19 article about the Lyft IPO: “...both [Uber and Lyft] still post big losses, but their revenues are growing sharply.”
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That statement shows the idiot mentality. The word “but” implies that “revenues growing sharply” render “posting losses” no problemo. Bull. 
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There have been cases where a company with a combination of long loss periods and high growth eventually became profitable—mostly Amazon. But more often, companies that produce nothing but losses during their initial decade or decades should not attract ANY capital unless they can show a logical, credible source of profits in the foreseeable future.
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Years of losses, must first be paid back if they were financed by debt. If they were financed by venture capital, there will be pressure from the VCs—like long-term contracts—to get a preferred return when the profits finally arrive.
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1. Lyft and Uber have never made a profit.
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2. They never will as long as they need drivers. True, the service is cheap for consumers, popular, and growing fast. But it cannot be delivered at a profit. So those attractions are irrelevant in evaluating an investment. Indeed, the cheapness depends on prices remaining low and prices remaining low prevent profit.
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3. Have the ride-sharing companies greatly improved cab dispatch, driver courtesy, robbery prevention, cleanliness of the cars? Yep. 
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4. Why are they not a great investment then? They have no monopoly on that. Some cab companies have copied those innovations. All can.
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5. Have the ride-sharing companies done a much better job of matching surges in demand for rides with surges in the number of drivers offering those rides? Yes, but merely ending regulation of cabs and artificially restricting the number of cabs would also do that. Cab medallions are an outrage. They are a way for an industry—taxis—to legally bribe politicians to hold down competition.
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6. Will self-driving, electric cars make ride-sharing profitable? I think so, but what would that have to do with Lyft and Uber? I would expect UPS or Hertz would be better able to provide and maintain a fleet of millions of of vehicles used by even more millions of customers for ad hoc or regular trips.
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7. Lyft and Uber have no expertise in acquiring, owning, maintaining, and disposing of vehicles—which are typically unionized workplaces. Nor are they structured to be such monstrous capital-intensive companies. What capital do Lyft and Uber have tied up in large assets like vehicles now? Zilch. They are essentially matchmakers like Match.com or eHarmony.com. All software and incessant recruiting of drivers who provide the capital assets (cars). Is there a big building in your city with a Lyft sign on it? Are there a fleet of Lyft vehicles running around your town? (Cars with removable Lyft logos not owned by Lyft don’t count.)
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Transportation is about to be revolutionized by self-driving, electric cars. Will that be a big investment opportunity? Not necessarily.
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Experts can tell you what to get OUT of: body shops, car insurance, career as a traffic cop or DMV employee, gasoline and diesel distribution, highway building, parking business, car and truck manufacturing (the needed fleet goes down to about 15% of current size when you stop parking vehicles for 95% of the time as now).
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Hertz and UPS may go up, but I must note they seem uninterested in the field. The hardware and software needed by self-driving cars would seem to be a promising field, but the hardware may become a commodity, like PCs. Commodities are tough business. Low-cost producer wins.
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I find it hard to believe the government is going to let some software companies have a copyright or patent monopoly on what is essentially a consumer SAFETY industry. 
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I see no network effect like Microsoft Windows which caused so many to buy Windows because everyone else had.
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Innovation means figuring out how to do something more efficiently. Putting toll booths only in one direction on bridges was such an idea. It made money for no one. Fasttrac electronic toll collection was even better. That made a little money for makers of the software and hardware necessary to identify your care when it used a toll bridge or road. No bonanza.
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So how about Main Street investors stop acting like small children on Christmas morning whenever another money-losing, tech-related company goes public? How about thinking through where the profit will come from to make Lyft worth $26.5B in the future?

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