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Today’s post is a casual interview with my good friend Turner Novak. He is known on Twitter for his high quality in-depth analysis and memes on consumer tech companies. Stock wise he was a loud Snap and TikTok bull way before it was cool.
Turner is a Uber bull and has ~7% of his money behind it. In the interview, we discuss why he’s:
Excited about Uber long term
Positive on Uber’s short term financial health
Searching for investment opportunities where the consensus is bearish
Hear us riff by playing the audio (20 minutes) at the top of this post 👆🏽
The lightly edited written highlights are below 👇🏽
Note: I am experimenting with my publishing cadence. I am going to post twice this week (instead of the usual four).
Why Turner is bullish
“Over the long term, the general idea is, Uber wants to take a cut of any transportation that happens...instead of owning a car...you open an app, press a button, and something comes and delivers you, or an object or good, to wherever you are trying to go.
So it’s a very ambiguous goal. I think they are trying to take a slice of total GDP...I kind of think of it like cloud transportation...renting the use of a fixed vehicle cost.”
The potential Uber bundle
Locks in demand
“There's been a lot of speculation. Say Uber is just rides...what’s stopping Google from rolling that out with Waymo? What’s stopping Lyft from competing on price?...Lot of people think Tesla is going to launch an autonomous Tesla taxi service. So if you just think about Uber on the taxi side, you kind of think ‘oh wow, this isn’t that defensible.’
Meanwhile, I think it is very hard to have a system where you open an app, press a button, and get picked up by someone in two minutes. That’s pretty hard to do. But I think a giant tech company like Google or Tesla could figure it out. So they need to figure out how to defend against competitors.
What if they add something like food delivery? As a consumer like me, when I’m on business, expensing an Uber between 2 places I’m going, or ordering something on Uber Eats, and when I’m at my house with my family, oh ‘I’m going to use the rewards from my Uber account to get free food.’ This whole thing compounds on itself, where different pieces do different things. You have this rewards bundle that keeps people in the ecosystem...”
“Uber has a product that some of its users are using and transacting with 5 times a day...so does it make sense to use a Tesla taxi app? Maybe it’s a little cheaper, but in your head, you’re like ‘ah, I just use Uber for everything.’”
Locks in supply
“At the end of the day, Uber is a phenomenal product [on the supply side]. They open the app, press a button, and start making money. You don’t need to go to an interview...it’s pretty incredible.
If you can layer on different ways to make money, for someone on the supply side…it is an interesting thing. You are just looking to make money, work 30 hours a week, and get what you need to get by. Which is what a lot of people are looking for with a job.
It’s a pretty big opportunity for these people...similar things, it’s all bundled together...it’s just ways to defend over time.”
On Uber’s Financial Health
“They have billions of dollars in cash. A lot of these underlying business models actually make money. It’s just that as a whole they are spending money acquiring customers...
It’s just that it looks like they are losing a lot of money because they are growing and actually strengthening the business as they get bigger.”
“It [Financial Services] is something they could do later.
Facebook is a classic example. WhatsApp as something it was supposed to be this big opportunity they’d make a bunch of money on it. It has literally done nothing since they acquired it. But it is still a massive opportunity that exists for facebook.
I think it’s the same for Uber. Like you said, ‘they are focused on profitability right now.’ The rides business collapsed, what was it, 90%? At the peak of the lockdown. So that’s 90% of their revenue that suddenly wasn’t able to be reinvested to strengthen other parts of the moat.
But it’s not like Tesla, Google, or Lyft even are knocking on the door and stealing all these users. They are a couple years away. I think Uber still has time. It will probably be something they revisit in a couple years.
They are really profitable. The stock is up. Investors are super bullish. They are okay with Uber giving up some of that short term profitability to reinvest and that is what makes the business model and competitive advantage stronger...
Pretty much every business had to change their product roadmap based on the state of the world. It makes a lot of sense Uber reprioritized.”
His Uber investment approach
What would make him sell
“For me to reevaluate to sell - it would be:
Uber is losing market share
Someone else comes out with a better model that works
Inability to raise capital
All of these are important for a company like this.”
Why he keeps in mind the market opinion
“With investing, a lot of it is understanding what the rest of the market is thinking.
If you go back and look at a company like Snap, it was perceived to have been crushed by Facebook coming out of its IPO. Suddenly, they are now adding more users than they were in the quarters leading up to when Instagram first launched stories.
The market didn’t really get that. They waited. Now there is this perception that snap is back. While it never happened, investors thought it was dying. At one point the stock was down 80% from the highs.
Understanding how the rest of the market perceives something is an overlooked skill in investing. You got to understand how other people are thinking about things…”
Why Uber fits that approach
“If you want to be an investor who outperforms the market, you have to find stuff before other investors know about it. If everyone knew and believed in this vision for Uber, it’d be a $500B company.
Look at Facebook and Amazon. Everyone knows those are great businesses. The revenue and cash flow is already there. People buy into their potential. They are trillion dollar companies.
If you look at a company like Uber...it’s a magnitude lower.
Part of it too is you got to figure out things before other people know them. To your point, timing and catalyst is really important.
What’s the catalyst that will get this taking off? [For Uber] that is just profitability showing up in the GAAP financials being reported...
If you go out far enough, Uber could probably do $100B in revenue per year. It’s just understanding how other investors are going to perceive and knowing when that is going to flip.”
The purpose of this WTF is to develop an opinion on Uber. Turner opened my eyes on the potential of an Uber bundle. Uber is already experimenting with a bundle, Uber Pass. I’ll be back later this week with an exploration of this idea.
Turner Novak @TurnerNovakThe risk of a competitor coming in with a lower cost structure (Waymo fleets) is real, but Uber's cross-product rewards and subscriptions both increase the barrier to entry (harder to replicate) and increase customer spend / stickiness as it adds products https://t.co/sUKISfBLpN https://t.co/SUtL5gImIm
I’d love to hear from you on three things:
What are your thoughts on an Uber bundle (features, pros, cons, etc.)?
Do you like the audio option?
What content (blogs, tweets, etc.) do you find yourself sharing the most? (I’m trying to refine my writing style)
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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. Witty guests are likely not either.