/By Matein Khalid/ Uber Technologies goes public in the most controversial and global tech IPO since Facebook seven years ago. Uber bulls claim that the ride sharing colossus is another embryonic Amazon, a firm that will dominate the digital constellation of the next two decades. I disagree. Uber loses $4 billion per annum and has already been forced to surrender Russia/CIS to Yandex, China to Didi and Southeast Asia to Grab. This Amazon wannabe is another potential stock market debacle, just like – surprise, surprise the Lyft IPO. Friends swoon at Uber because they marvel at its $3 billion buyout of MENA E-mobility firm Careem. Yet $3 billion is chump change in Silicon Valley and does not change the strategic calculus for Uber. As the Lyft IPO in March proves, investor are merciless with firms whose valuations are loony tunes and whose business models are suspect.
Uber’s prospectus filed with the SEC has deflated the $100 – 120 billion IPO valuation hype deal brokers have been selling to gullible GCC investors for the past year. The new price range projects a $80 – 90 billion valuation for the Uber IPO. Uber’s ride bookings are dangerously concentrated in five global megacities – New York, London, Sao Paulo, L. A. and San Fran. Uber Eats is a joke, an Old Economy meal delivery business with a mobile app – Dabbawallas R Us. Uber’s taxi drivers and host governments are hostile to many of the company’s revenue enhancing initiatives. Above all, horror of horrors, Uber’s revenue growth rate has plummeted from 69% in the March 2018 quarter to only 20% in the first quarter of 2019. I got a MBA (Master of Bubble-ology and Amnesia) from Wharton but even I can guesstimate that slowing revenue growth is like Count Dracula’s cross of gold to the stratospheric valuations of this ride sharing (urban taxi service) IPO.
Uber will also have to raise incentive payouts to drivers, a scenario that will slash its revenue growth metrics. It may be forced by legislation to increase the share of its drivers in its fares in a white hot US economy where the unemployment rate has fallen to 3.6% amid anti-immigrant policies from the Trump White House.
Uber’s loss rate has doubled to $1 billion a quarter. Bad news. Will the stock market tolerate $8 billion in operating losses in 2019 and 2020? Dream on, Mr. Bull! In fact, the biggest strategic impediment to invest in Uber’s IPO for me is my conviction that its business model/platform is already absolute. Google’s Waymo is already testing a fleet of robo-taxis in Arizona. There is no way Uber and Lyft can compete with Waymo and GM Cruise. The long term operating economics and strategic positioning of Uber spell a future brontosaurus to me. After all, robo-taxis will be far cheaper and safer to operate than human driven taxis. It is the Waymo IPO that will change the world and print money for public shareholders, not the poor sad sacks who have been skinned alive in the Lyft IPO-and will get skinned alive in the Uber IPO. Even Uber’s self-driving unit, financed by Softbank and Toyota Motors, is too early stage to compete with Waymo. Uber is second fiddle to Waymo in the quest to dominate the global autonomous vehicle driving business. Uber is the sizzle de jour but Waymo is the real steak.
The hype in Twitter and online trading chat rooms tells me retail hysteria is approaching a crescendo as the Uber IPO D-Day approaches. So even a first day blowout will not make me bid for Uber. After all, all that Lyft provided at 85 was an excellent opportunity to short the mobile ride sharing platform’s IPO at a nosebleed valuation.
The size of the Uber IPO reinforces the bearish case for me. At $10 billion, it is the biggest tech IPO since Chinese E-commerce firm Alibaba in 2014. Ture, Uber is a global brand and its IPO will trigger a speculative mania on Wall Street. True, I did not live through Dutch tulip mania or the South Street bubble but I survived the dotcom bust, the Nikkei Dow collapse and the Russian rouble/Asian currency meltdown. Value is my lodestar as an investor and the Uber IPO offers no value to me. It is moronic to buy a hot IPO on its offering date, when shares go parabolic. I hope to make big money shorting this puppy as I expect the Uber IPO will fall 50% sometime in 2019, as the Facebook IPO did in the summer of 2012. So get real. Get smart. Get short!
Dubai property prices will not bottom in 2019 or 2020
The latest bear market in Dubai real estate is now five years old and prices of villas and apartments even in prime communities have fallen a cumulative 25 – 30%. Even though this fall was no surprise to me as my macro/liquidity cycle and supply demand analysis flashed a sell signal in mid-2014. I find it hilarious that corporate media, brokers, local developers and bankers all cited Expo 2020 as the catalyst to buy in 2015, 2016, 2017, 2018 and even now in 2019.
I remember a childhood axiom. Wise men learn from other’s mistakes, average men learn from their own mistakes, fools never learn. The share prices of every UAE property developer I know is a testament to this wisdom. DAMAC, for instance, is down 70% from its highs amid colossal operating losses and at least $1.5 billion in bank loans and bond market debt. Wisdom LOL!
The smart money consensus in Dubai property is for another 10 – 15% decline in prices amid a crash in rents, spikes in vacancy ratios and an accelerating pipeline of oversupply. The catalyst for a sustainable bottom in 2020 or even 2021 simply does not appear apparent, given the banking credit crunch, rising jobless rate for high end expats, glut of inventory and plunge in offshore inward capital flows from traditional feeder markets like the UK, India, Russia, Saudi Arabia, Pakistan and Africa.
I see the liquidity cycle as negative for real estate in 2019 and 2020. After all, financial institutions have approximately $80 billion in loans to the real estate sector and $28 billion in mortgages for homeowners, one third of their loan books. This means six month EIBOR will go even higher even though the Federal Reserve has called time out on Jay Powell’s monetary tightening projections. Moreover, home mortgages in the UAE are among the most expensive in the world and homeowner equity will continue to be gutted, as it was in the 2008-12 bear market, when prices fell 60%. Once again, banks, developers and homeowners will learn the hard way that leveraged real estate is among the most dangerous investments in the global financial constellation.
The rising credit spreads and accelerating share price falls of UAE property developers convinced me that financing will become a sword of Damocles for even the largest real estate developers and investors. With 50% vacancy ratings in say, Business Bay, it is also evident that handful of commercial banks who financed speculative office building developments, let alone half empty warehouses, labour camps and horror of horrors, suburban shopping malls, will find non-performing loans continue to rise. The cost of borrowing/access to borrowing and the collateral value of lender’s asset books will continue to stay stressed for the next three years. This is not the macro zeitgeist for a new bull market in Dubai property.
I often hear investor friends who are long real estate argue that prices will bottom at 2009 – 2010 levels, not far below current levels. Poppycock – absolutely wrong. There is nothing sacred about a prior bottom in real estate. As a student of von Hayek’s Austrian School of economics and investment cycles, I have seen real estate bear markets bottom at 30 – 35% of replacement cost in Florida, Spain and even UK since the 1990’s. This means a 25 – 30% downside price risk in the prime areas where I could be most interested in bottom fishing. New builds? Off-plan Ponzi schemes? Make no sense when there are tens of thousands of empty units and a delivery pipeline that is unquantifiable. I am an investor, not a masochist and off-plan in a glutted market with balance sheet angst is a license to be skinned alive in this crazy life, the vida loca to my Argentine friends in Buenos Aires. Yet what is an Argentine hombre? An Italian who speaks Spanish and wishes he was an English milord, O lord of the pampas. Hola amigos!
Expect developer margins to continue to fall. Expect leverage ratios to rise and asset quality to deteriorate in bank loan books. Expect the EMI-rental gap to devastate buy-to-let investors, even as service charges continue to rise. This makes a bottom in prices unthinkable until the credit cycle stabilizes. Will it in 2019 or even in 2020? Absolutely not.
I am not alone in my financial calculus. Standard & Poors, no broker or ad-dependent newspaper, expects a cumulative decline of 20% in Dubai property prices in 2019 – 2020. This is not the time to catch a falling knife!
Also published on Medium.