Unicorns Rampant – Uber, Lyft, DiDi & Turo

Unicorns don’t exist – do they? So how come so many bright people want to buy their shares? Victor Hill would really like to know.

Heraldic significance

In medieval heraldry – a semiotic art form which held sway in Europe for centuries and which still lingers in, for example, British pub signs – a rampant unicorn (that is, a unicorn rearing on its hind legs, sometimes facing right and sometimes left) signified strength and power. Famously, the crest of the British monarchy shows a lion and a unicorn upholding a heraldic shield that displays the symbols of the four nations of the United Kingdom.

Moderns might object, however, that while lions certainly exist (I myself have seen some up close in Kenya) unicorns are mythical beasts. The unicorn, which originated in Greek mythology, is a horse with a single horn (like that of, say, a rhino). But no such equine exists.

Investors these days might therefore experience some glimmer of dubiety when they are invited to invest in unicorns. This could be the result of what the great philosopher, Wittgenstein, called the bewitchment of intelligence by language[i]. You see, about ten years ago, some bright spark (and it definitely wasn’t me) christened all technology start-ups which were putatively worth more than $1 billion unicorns. And the name stuck – even though unicorns do not exist but dynamic technology start-ups definitely do.

Terminology aside, we were accustomed to tech companies that provided services (information) like Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) and then entertainment like Netflix (NASDAQ:NFLX) and its imitators (most recently Disney Corporation (NYSE:DIS)). But then came this new genus of facilitator – especially in the fields of transport and delivery which enable us to get to where we want to go or to receive the goods that we have ordered on Amazon and the rest…

Some of these facilitators are now launching on the market – led by Lyft (NASDAQ:LYFT) which came to market at the end of March in a $24 billion flotation. Other unicorns are due to launch later this year, including Uber, Pinterest, Palantir and Airbnb. But for today I’ll just consider the transportation app unicorns.

The Uber phenomenon

An early investor in Uber said about Travis Kalanick, its founder and first CEO, soon after the taxi app was first launched in 2009: “It’s hard to be a disrupter and not be an a***hole”. Mr Kalanick did not disappoint on either count.

Uber is now a global phenomenon. It has grown into a must-have tech brand which offers a hassle-free taxi service in decent cars (with generally pleasant drivers) right across the planet – and no dirty cash changes hands at the end of the ride. All people have to do to start using it is to download the app onto their smartphone and to register their credit card details.

But as time has gone by Uber has been plagued by corporate governance issues. Mr Kalanick was accused of sexual harassment at the company’s San Francisco HQ in 2017. (Not a great image for an outfit that invites single women to get into strangers’ cars at night.) Then Bloomberg posted a video of Mr Kalanick abusing one of his own drivers which demonstrated (ahem) a lack of emotional intelligence on his part. Mr Kalanick was forced to step down as CEO in 2017 after Benchmark Capital reportedly demanded his resignation but he remains a board member and a major shareholder. He was replaced as CEO by Dara Khosrowshahi.

Facility of use aside, the term the Uber economy has become a by-word in the USA and beyond for the casual exploitation of freelance labour. Then there is the more piquant criticism that Uber is fundamentally an aggressive agitator which competes on price alone – customers be damned. The #DeleteUber campaign on Twitter in 2017 lost Uber hundreds of thousands of users.


Add to that the brouhaha surrounding Uber’s exploitation of a loophole in the UK VAT regime by means of which it shifted responsibility for VAT payments to its 40,000 British drivers. Uber did this by using an EU rule concerning business-to-business sales across borders within Europe, billing its UK drivers from its Dutch subsidiary. The UK accounts for about one third of Uber’s total sales in Europe. In contrast, competitors Gett (which summons traditional licensed black cabs in the UK) and Mytaxi pay VAT on booking fees because they bill their drivers from within the UK.

In practice, of course, most Uber drivers do not pay VAT because their total earnings are below the current VAT sales threshold of £85,000. Uber drivers in the UK make on average £560 a week from fares – so about £28,000 a year. Uber takes a cut of 20-25 percent on these fares. Its UK revenues alone are thought to be over £200 million a year.

In September 2017, after a series of incidents, Uber lost its license to operate in London. Transport for London (TfL) argued that Uber was not a “fit and proper” operator, saying that Uber failed to carry out sufficient background checks on its drivers. 600,000 people signed a petition demanding to reverse the ban. Uber was permitted to continue to operate pending an appeal.

Mr Kalanick apparently followed his idol, Amazon’s Jeff Bezos, by putting growth ahead of profitability. He also pioneered a diversification strategy.

Two years ago it was reported that Uber was planning to build its own car parks near London City Airport and near Gatwick Airport in order to give drivers a dedicated place to wait for the next job. Then Uber set up Uber Freight which sought to do for the trucking industry what the company had done for the taxi sector. Over 70 percent of US goods were transported by truck in 2016 and the sector had revenues of $738 billion. Productivity in the trucking sector has lagged behind other transportation sectors due to entrenched practices. Using Uber’s smartphone app truck drivers can now sign up to deliver freight days or weeks in advance.

Uber even purchased Otto, a company that was developing driverless trucks. The company is now defunct as Uber closed it down to focus on the development of self-driving vehicles. It is active in the field of food delivery, treading on Deliveroo’s toes. It also owns spin-off businesses active in cycle and scooter hire.

Uber has benefited from its size, pursuing a market dominance strategy. But it has not had everything its own way. The company was forced to retreat from China, Russia and Singapore by local incumbents; but in Dubai it has bought out local competitor Careem in order to consolidate its dominance.

And there is the little matter that Uber is still burning through investors’ cash with little prospect of going into the black in the near-term. We know that Uber lost around $1 billion last year on revenues of about $10 billion (that’s after the deduction of the drivers’ share of the fares). Indeed, it has consumed over $11 billion of investors’ cash since it was founded in 2009. We’ll find out more financial details soon in the run-up to their proposed IPO later this year. According to CNBC markets[ii] Uber could be worth up to $120 billion – making it more valuable than Nvidia (NASDAQ:NVDA) and PayPal (NASDAQ:PYPL).

The Lyft Challenge

Lyft has beaten its more famous rival to the stock market. On 29 March the company’s shares were launched on the NASDAQ (under the moniker LYFT) at a price of $72 a share, valuing the company at $24 billion. By close of business yesterday (17 April), however, the share price had fallen to $59.

Lyft was founded in 2012 in San Francisco and was rolled out in hundreds of US cities. Lyft first came to prominence in the UK during TfL’s ban on Uber in Britain’s capital city. Although it operates a very similar business model to that of Uber, it has cultivated a more socially conscious brand than its more controversial competitor.

Nevertheless, there is a feeling that, as the Daily Telegraph’s James Titcomb put it, Lyft is Pepsi to Uber’s Coke – a perennial runner-up. As we know, most of the profits in any given sector tend to be gobbled up by the market leader. The US taxi hailing market is nearly 60 percent dominated by Uber and 39 percent by Lyft. Uber is much bigger and is diversifying more widely. Lyft is an also-ran in a tech universe that favours monopolies. Therefore the initial valuation of Lyft’s shares looks overly optimistic.

Difficulties at DiDi

The Chinese car-hailing giant DiDi Chuxing halted its expansion in August last year after a 20-year-old woman passenger was raped and murdered in the eastern city of Wenzhou. DiDi is credited with chasing Uber out of China in a war of attrition which cost both firms billions. Finally, in 2016, Uber sold its Chinese operations to DiDi in exchange for an 18 percent stake. DiDi launched in Australia in early 2018 and then in Mexico.

In July last year DiDi secured a $500 million investment from the owners of the US travel website Booking.com, Booking Holdings (NASDAQ:BKNG). This money is likely to be used to fund DiDi’s expansion into western markets. DiDi’s users can now book holidays through Booking.com and other websites such as Agoda and Kayak which are owned by Booking Holdings. China is rapidly becoming the world’s largest market for travel services, sending more tourists abroad than any other country.


DiDi owns a stake in the Estonian taxi-hailing network Taxify (whose app is called Hopp) as well as in numerous other apps around the world. Last year DiDi also raised $4 billion in a funding round in Japan in which the Japanese tech conglomerate Softbank (TYO:9984) participated. DiDi has raised a total of about $20 billion since it was launched in 2012.

The company even secured a $1 billion investment from Apple (NASDAQ:AAPL) partly to fund its own research and development centre in Silicon Valley called DiDi Labs. There it has been testing self-driving cars (or should that read self-driving taxis?).

The Turo advantage

Turo makes it possible for people to hire cars in almost any location on a peer-to-peer basis – meaning that I can rent your car for a day (or longer) from you when you don’t need to use it. Cars available are practical roadsters; but enthusiasts can take classic or luxury cars for a spin just for the hell of it.

This concept is much better established in the USA than in the UK but it is now available here too. Turo launched in the UK last September and now has 4,000 cars on the app and 92,000 registered users. 5,000 new users are signing up each month.

In the US Turo and its smaller rival Getaround are engaged in what they regard as a David versus Goliath battle with the established car hire companies – dominated by the big three: Avis (NASDAQ:CAR), Hertz (NYSE:HTZ) and Enterprise (private). These giants think (naturally) that Turo and the nascent car-sharing sector should be tightly regulated in terms of tax, safety and insurance.

Turo, unlike Uber, has not made any financial information available. The word is though that Turo’s cut of the hire fee is large. Unlike Uber’s drivers, Turo’s providers don’t make a living out of making their cars available – just some useful extra cash. In contrast, in the traditional car rental market, margins are tight. Zipcar, a fleet-based car-sharing app was bought out by Avis in 2013. Moreover, Daimler (ETR:DAI) has invested in Turo, leading a $92 million funding round in 2013.

What about safety? That is an issue; but good hosts (i.e. car providers) who provide well-maintained clean cars get good reviews – and vice versa. While mature business people might be squeamish about climbing into other people’s cars, millennials are more comfortable with the sharing economy. I’ll be explaining why that is significant in my article in the May edition of the MI Magazine.

Those who did not make it

This is not a risk-free sector as there have been a numerous failures in the taxi-hailing app space.

Karhoo, the HQ of which was in London but which was domiciled in the USA, collapsed in December 2017 at the cost of 200 jobs. Karhoo started out in May 2016 in London and reportedly raised $150 million to fund expansion in nine UK cities as well as New York, Paris and Singapore.

Autolib was lunched in Paris in December 2011 and built up a fleet of more than 4,000 cars. Its unique selling point was that all of those vehicles were electric. After acrimonious litigation around the use of its name and brand and a series of car fires the company went out of business on 31 July 2018. Autolib was the moving force behind Bluecity which facilitates electric car sharing in London.

And yet more players are still coming into this space. Last year Indian taxi-app giant Ola announced plans to launch in the UK. Ola has a very interesting story to tell in its home market – one I shall relate soon in the context of India.


The real question is: when will these app-master facilitator unicorns ever make money? I don’t think even they have any idea as to the precise date. But they are huge, popular and here to stay. And they are investing like crazy. Personally, I would foreswear the IPO and track the share prices thereafter – investors will have to take a long-term view. Lyft might even be a buy at $59 – though I suspect it will go further south before its true value is determined.

***

The cathedral of Notre Dame – where, by the way, our very own Henry VI (amongst many other things, the founder of Eton College) was crowned King of France in 1431 – that medieval jewel perched on the Ile de la Cité at the epicentre of Paris, burned throughout the night of 15 April – Monday of Holy Week.

I cannot think of a more inauspicious omen for the future of Europe. Amongst the thousands of words written about this dreadful event that I have read, nobody mentioned that all road signs in France showing the distance to Paris are calibrated on the distance to the nave of Notre Dame. So Notre Dame is not only the heart of Paris but the very centre of France – and, in many ways, of Europe too.

I may come over as a bit Eurosceptic sometimes, but I have always been a Francophile, having spent several years of my early adult life in France. Indeed, it is precisely because of my intimate knowledge of France, its wonderful language and history that I understand why my native sceptre’d isle and la belle France are such uneasy bedfellows.

I wouldn’t want to politicise this cultural tragedy. But the event throws into contrast the modernist, federalist, globalist France epitomised by Monsieur Macron and the old Catholic France of people praying and singing hymns as the cathedral burned. It will be interesting to see how that plays out in the forthcoming European elections.

I’ll be spending Easter at my newly acquired dacha in deepest Norfolk. I am determined during this festival of renewal not to utter the B-word at all, even if it comes up down the village pub. Mr Farage’s people invited me to be one of their B-word Party candidates – and I declined: because I’m still a One Nation Tory – though currently a despairing one.

Christ was crucified at Passover, though the dates of Easter and Passover rarely coincide. This year, exceptionally, they do. So let me wish my Christian readers a joyous Easter and my Jewish ones a very happy Pesach!

And don’t even think about the upcoming European elections over the long festive weekend!

[i]Ludwig Wittgenstein, Philosphical Investigations (1953).

[ii]See: https://www.cnbc.com/2019/03/15/ubers-eye-popping-valuation-worth-more-than-nvidia-and-paypal.html