News that Uber “lost $5.24bn in the last three months, its largest-ever quarterly loss”, and worse than analysts had expected, sent the ride-hailing firm’s shares “sliding 10%”, says Dominic Rushe in The Guardian. Meanwhile, revenues rose by only 14% – “the smallest percentage on record” – to $3.17bn, rather than the $3.3bn hoped for. The weak showing has investors worried, especially as Uber’s “shares have only closed above their initial public offering (IPO) price of $45 twice since its share sale”.
Uber’s investors should calm down, says Jim Edwards for Business Insider. After all, the company suffered “a paper write-off, not an actual loss of cash”. The main reason behind its technical loss is that it issued $3.9bn in shares as compensation for staff. True, it also increased its various operational expenses, “such as marketing, research and development, and salaries” and administration costs, but those can all be “cut in the future if need be” and show that “the company is investing in its own growth”. With “a long way to go before it tops out”, those selling their stock right now are “idiots”.
Tough competition and fickle customers
Nonsense, says Jamie Powell in the Financial Times. The only reason why the company grew its cash on hand is due to the recent public offering. In any case, Uber is not a start-up, but a “decade old global brand, whose core business – ride sharing – is now growing at just 2%”.
As a result, it is “scrambling for new growth” like “Oracle, IBM or perhaps even the modern-day Apple”. However, unlike Uber, “all of these companies have ‘cash cow’ products which help to keep the buybacks and dividends flowing, as well as funding future bets”.
Unfortunately, Uber can’t replicate the profitability of more established technology firms because the market for ride-hailing “is flooded with competition”, says Will Bedingfield for Gizmodo.
While online retailers such as Amazon and Alibaba invest huge sums in distribution centres and “win the market with quite involved consumer products”, when it comes to online cabs, consumers typically have multiple apps on their phone and “just go with whoever is busy or wherever they can get the peak pricing”. The ride-sharing business “has given Uber scale and capital” – but it needs to find a sub-sector that has “structural profitability”, or else it will “run out of road”.
One solution would be for Uber to establish a “dominant” market position in ride-hailing, says The Economist. However, on recent form it looks like investors may “have a long wait” – indeed, it looks as though Uber is the one losing market share to its rivals. One competitor, Lyft, recently reported a 72% jump in revenue “as it eats into Uber’s market share”. Despite assurances from both firms that competition between the two is “easing a little”, fares “will remain low and losses will continue to mount while it remains so intense”.
Burford blasts back at short-sellers
Litigation financier and star Aim stock Burford Capital has launched a “fierce attack” on short-selling hedge fund Muddy Waters (see page 30), accusing it of “illegal market manipulation”, reports Tom Rees in The Daily Telegraph. Last week Muddy Waters issued a report arguing that Burford is “egregiously misrepresenting” its returns and is “a perfect storm for an accounting fiasco”.
Burford’s share price slid, wiping more than £1bn off its market value, but rebounded somewhat after it issued a rebuttal, and counter-accused Muddy Waters. The hedge fund, for its part, denies any foul play, retorting: “The only manipulation is that of Burford’s return metrics, accounts and disclosures”. Each party has reported the other to the regulator, the Financial Conduct Authority.
There is “a bad smell about this latest exercise” in short-selling and running, says Jeremy Warner, also in The Daily Telegraph. There is nothing wrong with short-selling as such, “but when publication is conjoined with a large short position, it all gets a little suspect”.
Yet while the short-seller “has gone too far with some of his attacks”, Burford could do a lot more to address concerns over its “byzantine governance”, says Chris Bryant on Bloomberg. For example, “given the level of managerial subjectivity involved in determining the value of the legal cases funded by the company… it’s troubling that the chief executive and finance director are husband and wife”. If Burford wants to recover the confidence of investors, “it should rethink, quickly”.
• Despite its shares being hit by its association with the Woodford Equity Income fund debacle, Hargreaves Lansdown is “still raking it in”, says James Coney in The Sunday Times. However, if it wants fully to recover its lost reputation it needs to do more than “just tinker… with the wording on its best-buy lists”.
For a start, it must end the “distasteful profiteering” from customers who keep cash, which now accounts for 11% of its assets under management. It also needs to end the “disgusting” exit penalty of £25 per stock plus £25 when customers move to a rival. Such a move would show that it is committed to “fairness”.
• Last week, Cathay Pacific’s chairman stated that the airline “would not intervene” against staff who participate in the ongoing protests in Hong Kong, says Clara Ferreira Marques for Breakingviews. But the firm, “which is a local institution” employing 27,000 people, has now changed course, stating that it will “yield to Beijing’s civil aviation authority, including by submitting crew lists for flights to and over China”.
Such a reversal was always on the cards: “Cathay has no domestic market and can ill-afford the loss of mainland passengers”. All the same, it’s an “unwelcome reminder” to investors “of just how tight Beijing’s grip is”. Others “may soon find themselves… caught between China and a hard place”.
• The decision by Turkish tour mogul Neset Kockar to buy an 8% stake in Thomas Cook recently sent the tour operator’s shares soaring on hopes of a “rival rescue plan”, says Roland Head in The Motley Fool. But they have since fallen back, as the group admitted that it needs more money to keep it going this winter. It was always a long shot – even if Kockar had access to the kind of funds needed, banks and other lenders are already working with China’s Fosun and “may be reluctant to start anew”. And even if his proposals were successful, “lenders won’t agree to accept losses on their loans if shareholders are being bought out”.