Uber et al: Unicorns Leading the Way to the Great Crash Ahead

Markets were badly shaken when news of China’s planned tariffs on $60 billion worth of US goods hit the wire.

All the red across the board isn’t doing Uber any favours. Talk about bad timing for an IPO. But even before markets began correcting, the ride-hailing company was not feeling investor love. It’s the fourth worst IPO in the last decade, closing on its first day 4.5% below its launch price.

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That’s unusual…

These IPOs are priced a bit below what’s perceived as fair value and investors almost always fight over the stock right out of the gate. Not Uber though, and it’s another sign that we’re in the late stages of the tech and global stock bubble.

When we were in the late stage of the last tech bubble, in 1999, a swarm of Internet stocks with no profits, and only some with little sales, came out of the woodwork with super-high valuations. That’s what I call the infancy stage of a new technology where you actually see the most extreme bubble versus valuations.

The next S-Curve wave emerges on a tiny scale as the previous S-Curve is peaking after surprising everyone with its growth and scale. That makes the new companies look like the next big thing. They may well be the next big thing, but not right at the beginning of the curve.

Yet, investors always over value technologies in their early stages…when they’re small, unprofitable, and slower to have impact.

Even worse…

They then greatly underestimate them in the longer term (that’s the trouble with our natural inclination to think in linear terms).

This is what’s going on with bitcoin, cryptocurrencies, and blockchain technologies today. They’re in their infancy, just like the internet was in 1999. Investors got burned…and then when the players were ready for the real lift off in 2001–2002, most missed the launch.

Mark my words: blockchain is the next S-Curve in the internet arena. It’s the Internet 2.0, only on about a 20-year lag. Starting with a wild and crazy bubble based on minimal sales and no profits, by the top of the next global boom, around 2036/7, it will be one of the next big things.

Australia is usually a laggard when it comes to technology uptake, but there are some promising signs coming out the country when it comes to blockchain.

RMIT in Melbourne has the ‘Blockchain Innovation Hub’ and there is much good work being done there — with some serious economic minds behind the program.

If Australia really wants to innovate this will be one of its best avenues of attack. But even if there is significant growth in the tech sphere, the country remains (almost) hopelessly reliant on digging things out of the ground and shipping it to China.

Which is why its ‘miracle run’ economy will suffer when the Dark Window scenario plays out and the bubbles burst.

Recent IPOs hint at what’s to come…

We are also presently experiencing a ‘unicorn’ bubble of IPOs. Look at this chart of 12 recent IPOs, executed or about to…

Latest IPOS Looking More Like Internet in 1999 Before Major Top! 15-05-19

Source: Dent Research.com

[Click to open in a new window]

Uber is the largest in sales, but nowhere near in the number of users. Of course, there is more revenue per user than on the typical online sites that have hundreds of millions of users in this table.

The important number to focus on here is Price to Sales, since most have only losses. Uber is higher than Lyft at 8.8 times versus 7.8. After all, it has more scale and leadership. Still, 8 times sales is a very high valuation. Normal companies would go for more like 1 times sales.

But the real story, as usual, is that the cumulative losses of these companies is only growing, with Uber the worst, losing near $14 billion.

It’s natural for early stage companies to lose money when they’re starting up and building to scale and breakeven. But there are serious questions about whether Uber (and many others) can ever be profitable.

Its margins are low, there are an increasing number of competitors like Lyft, and its drivers are barely surviving on low wages and long hours. It’s an ugly picture, with little in the way of hope.

This underperformance by Uber is not conclusive yet, but it looks like a sign of the beginning of the end, just like 1999 for Internet stocks. Bubbles are such that people end up greatly overpaying…chasing dreams, er…unicorns…and paying a nasty price. Then, when the greatest sale of a lifetime opens up before them, they’re gun shy! Don’t be one of those investors. Stick with us, and we’ll make sure you’re in the right place at the right time…at all times.

Regards

Harry Dent,
For The Rum Rebellion

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Harry Dent is an economic realist. His market predictions and strategies, as well as his general views of the economic and political state of the world, are based solely on his own knowledge. And, as a Harvard University MBA graduate and Fortune 100 consultant, it’s not as though he’s lacking in this resource. But if experience isn’t enough to convince you, perhaps his accuracy is. In 2017, Harry Dent was making calls about the Australian property market that are coming into play as we speak. And yet, the media portrayed him as ‘crazy’. At The Rum Rebellion, this sort of biased, inaccurate media that isn’t accepted. Dent and his fellow editors aim to give you the information you should know, rather than what the media wants you to know. Dent believes in facts and facts alone when forming an opinion, and such is The Rum Rebellion mission.


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