My take on Uber 🕵🏽♂️
The ‘aha’ moment we’ve been waiting for
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Grappling for closure.
Five posts in, I didn’t have a clear opinion on Uber stock, despite scrutinizing everything about them.
While I believe Uber will make their business work, I was lacking the ‘aha insight’ that made me a long term, passionate believer.
After wrestling for two weeks - I found an ‘aha.’ It’s just not the one the optimist in me liked.
I’m not investing in Uber for now. Here’s why:
TL;DR - I think Uber is a good stock but not a great one. They want to be a super app, but don’t have a super way to expand. I want to invest in things that can 10x in 10 years.
Uber is good
I believe Uber is a better company than the market believes right now.
They are baseline good in my book for three under appreciated reasons.
First, they are on a path to profitability. Their Rides business was rolling in the dough pre-COVID.
Second, they have a proven way to grow. They are extending their Rides playbook into different delivery segments.
Third, an Uber bundle (launched last week) can help fend off competitors. It locks in existing demand and supply.
These points make me believe Uber is baseline good. That said...
Can it be great?
I’m not sure about you, but if I’m going to invest in a stock, I want to fully believe in it.
Believe it has the potential to 10x in 10 years. Believe in it enough to be patient through its lows. Believe in it as much as Rob Schneider believes in Adam Sandler.
Now, we never know with certainty which stocks will be the 10x’ers. There is risk we take by speculating.
Still, let’s try. What makes a great growth stock?
I simply define it as one that’s 1) underlooked now, but 2) will be astronomically right in the long term. In an ideal world, we’d buy a stock when it’s not loved, and ride it as it appreciates to the moon.
So, how does Uber stack up?
It’s clear to me that Uber is underlooked. Wall Street is bearish and the stock has been hammered (even pre-COVID) since IPO’ing last year. Part one: check.
Part two: How does Uber’s long term prospects look?
There’s many ways to examine this. To me, the best way is to explore the story Uber pitches about its future.
Uber’s endgame, revisited
Uber essentially wants to be your butler. From their last strategy announcement:
Whenever you want something, use Uber and get it instantly delivered. That means rides, food, groceries, but also any day to day personal items too (e.g. clothes, toiletries, prescriptions).
"We really want to be the operating system for everyday life. What that really means is being the one-stop shop for transportation and daily commerce needs." - Manik Gupta, Uber’s most recent Chief Product Officer
Super Super-App’s
This approach is known as the Super App strategy. It was the key to success for massive Asian technology companies like WeChat, Gojek, LINE, and Grab.
With this approach, the aim is to monopolize the attention and expenses of your users. You can’t lose customers if they don’t leave your app!
Super App expert and respected venture capitalist Connie Chan adds context,
“The mindset that so many Chinese and so many Asian companies have is ‘let me be the app that can encompass all the services and needs of my users so they don't have to ever leave my app.’ In fact navigating through WeChat or la pay or Baidu Maps is actually sometimes easier than my iPhone home screen because I don't have to even press the home button. I'm one click away from everything. Signed into everything. My payments are stored for everything. This is what the super app concept is and this is the secret. This is the secret of so many Chinese companies. Sharing distribution, sharing your traffic, will help you retain mind share, and help you retain relevance.”
This is what I’m talking about! Being a monopoly across industries? That’s a 10x opportunity!
The Playbook
Now, whether or not you believe Uber can 10x comes down to, ‘Can Uber become a Super App?’
Let’s look at how other Super Apps came to be. I found they roughly followed a three step playbook:
Set up core internet based infrastructure (e.g. communication, rides)
Dominate that daily customer habit
Expand easily via a rare, valuable asset (e.g. digital wallet, attention) and be at every point of customers your daily contact with the world
Here’s an example with the Chinese super app, WeChat, sourced from The Economist:
Chinese consumers didn’t use email (never took off) or texts (too costly). WeChat set up a free messaging service
Over a billion users now visit the app ten+ times a day
Expanded to all use cases by building a digital wallet and their own version of an app store (users could access all types of services and pay through WeChat Minis)
Grab and Gojek did something similar. They started with rides instead (a la Uber), dominated their initial markets, then launched their own digital wallet and services (instead partnering with others like WeChat did).
My take: I’m not buying it
Using the above framework, as of now, I believe Uber won’t be a Super App, and in turn, won’t 10x in 10 years.
They have steps 1 and 2 down pat. Yet Uber is missing the most transformative part: step 3 - an easy way to expand!
“The biggest moat GOJEK built is payments. Once you’re handling money for a user, you can build a castle of services within it.” - Sidu Ponnappa, SVP @ Gojek
Super Apps typically leverage payments and /or attention to expand. We found payments isn't a 10x solution in Uber’s core markets (Uber decided to dismantle their digital wallet team). People also don’t pay attention to the Uber app like they do WeChat. In fact, I learned from former employees that people don’t open the Uber app until after they decide they want to order or do something!
I don’t see how Uber has a great wedge right now. Without it, Uber is in a spending battle to scale. That doesn’t sound like a 10x case to me. Uber has their hands tied to profitability for at least the next year. Intense competition looms in delivery with DoorDash, Just Eat Takeaway, and Amazon. It's an uphill slog.
To wrap up this first WTF, I’m passing on Uber right now. I’d rather keep searching for a stock I believe can 10x.
That said, this is my opinion. What do you think? Do you believe Uber can 10x over 10 years? I’d love to hear from you - feel free to reply to this post.
See you on Monday,
Note: This content is for informational purposes only. It should not be relied upon as legal, business, investment, or tax advice. Your use of the information contained here is at your own risk. I am not a financial advisor.