As you likely have heard, Uber is having its IPO (Initial Public Offering) on Friday, May 10th in what is being hailed as the largest IPO of the year. There is a ton of excitement and hype surrounding the IPO. It’s even likely that you have bought into some of this excitement. After all, you have probably used the service and heard of the people who are going to make a killing because they invested in Uber during the early stages. But is this something you should invest in? While I can’t directly answer that without knowing your specific circumstance, I can tell you my thoughts on the company.
Uber has the potential (keyword being “potential”) to be a company that completely alters how humans move themselves and freight around the world. It is an ambitious goal, to say the least. While Lyft is the main competition to Uber, Lyft is more focused on ride-sharing. Uber wants to impact not only ride-sharing, but food delivery, freight, corporate travel, and whatever else they decide they want to disrupt. They want a fleet of driverless vehicles picking up and dropping off people and freight.
Am I Going To Invest In Uber?
To keep it somewhat short – No. At least, not right now. Uber, at this time, does not match the type of companies I like to invest in. It sounds funny, but I like to invest in companies that make a profit now rather than companies that are losing money today but may potentially become profitable 5-10 years from now. Seeing that Uber lost $1.8 billion in 2018…we are a long way off! They also said in their IPO disclosures the company “may not achieve profitability”. Yikes! At least they are being upfront with potential investors.
I also like to invest in companies that pay dividends. And not only that but companies that have a history of raising their dividends. To do that a company needs years, if not decades, of rising profits before they can start paying back investors. The dividend is proof of stability.
A strong point in the company that can’t be overlooked is Uber has incredible brand recognition. To the point where “Take an Uber” is so mainstream, it is becoming the Kleenex or Xerox of today. Uber does face increased competition from other ride-hailing services but does get a first mover advantage from some of its other ambitious projects.
I also like companies that have a history of strong management in place, and given Uber’s issues from the last couple of years with their executives, they still have a lot to prove in this regard.
Finally, I avoid investing in an IPO as investors do not act rationally when a stock first hits the market. There is usually a lot of hype (especially so in this case) which can drive the stock price up in the short term, only to come crashing back down once that “new stock smell” wears off and they remember they bought a company that lost $1.8 billion in 2018 and “may not achieve profitability”.
What If I Really Want To Invest In Uber?
If you believe that Uber is going to be a “once in a lifetime” company that completely transforms the world, then you should do some extra research before pulling the trigger. I would make that recommendation to anyone wanting to invest in any company. Research, then research some more, and finally - research even more!
Once you’ve done that, ask your financial advisor what they think and if it is a good investment for you. If you don’t have a financial advisor and would like one, start the process of finding one before making any additional investments. And if you are completely independent and not looking to hire an advisor, you should continue to do even more research and analysis before making the investment.
The question you should be asking yourself isn’t “Should I invest in Uber?” it’s “Does investing in Uber fit with my current risk tolerance, goals, and portfolio composition?” You need to have an investing plan rather than picking stocks at random that get hyped daily on CNBC.
If you do want to invest, I would tell you that you should have the mindset of holding this stock for 10 years. And that 10 years is likely going to be a bumpy ride (pun not intended). Investing in Uber is a long-term bet they achieve their ambitious goals. The stock should be a small allocation of your portfolio rather than going “all-in” and being 100% invested in only Uber stock. The core of my client portfolios is mostly compiled of ETF’s. This helps keep expenses low and increase diversification. Once the core portfolio is built, then clients can take calculated risks with individual stocks. An even smaller percentage of those individual stocks are what I would classify as “very risky but with high upside” – I would classify Uber one of those stocks.
Uber has the potential to change the world. There’s no doubt about that. But the corporate environment they find themselves in change once companies go public. Getting to that end goal becomes even more difficult (see Tesla). Uber could be the company that makes autonomous vehicles and transportation happen – or it could be the company that opened the door only to fall by the wayside. Similar to how Yahoo opened the door for Google, Friendster/Myspace to Facebook, or Blackberry to iPhone.
Very few companies can fundamentally change civilization – Do you think Uber is “the one”?
Personally, I’m not yet convinced.
As of this writing, Shaun Melby, CFP® does not hold a position in any of the aforementioned securities.
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