Investors Still Confident In Uber Despite Its Problems

A photo of someone using the Uber app.

Photo credit: Mr.Whiskey / Shutterstock

It’s no big news that Uber has had a rough 2017. From harassment scandals to activist investors to regulatory troubles, the ridesharing company has had a lot of challenges in the past year. But despite all of that, investors remain confident that the $70 billion company is poised for growth.

“We’ve seen it over years and years, and I think [former CEO Travis Kalanick] has learned some very challenging lessons,” said William Ford of General Atlantic, one of the firms that has invested in Uber. “But the good news is he is learning. I think he’s taken good counsel from his board and some of his investors, and he’s got our confidence.”

But the company’s challenges aren’t over yet. The transport regulator in London recently refused Uber’s license renewal bid, a decision the company says it plans to appeal.

Regulatory agency Transport for London cited Uber’s approach to reporting serious criminal offenses and failing to do background checks on drivers as reasons why the company’s license renewal bid was rejected.

The GMB, Britain’s general trade union, and the London Taxi Drivers’ Association may participate in the case, too, if Westminster Magistrates’ Court Chief Magistrate Emma Arbuthnot agrees to allow it.

A hearing on the case is scheduled for April of 2018, but that may be pushed back due to scheduling issues. Meanwhile, Uber’s 40,000 London drivers will be able to continue taking passengers until the appeals process is exhausted—a process that could take years.

In an attempt to get its licensing back on track, new Uber CEO Dara Khosrowshahi apologized to Londoners and met with Transport for London Commissioner Mike Brown for talks.

On December 10, an Uber spokesman said, “We continue having constructive discussions with Transport for London in order to resolve this. As our new CEO, Dara Khosrowshahi, has said, we are determined to make things right.”

Regardless of the troubles in London and the issues simmering in the company itself, investors are still feeling that the company has something to offer.

In addition to General Atlantic, Uber has attracted investments from the likes of Goldman Sachs, Dragoneer Investments, Chinese ridesharing service Didi Chuxing, and Saudi Arabia’s Public Investment Fund. Why? Because the company’s troubles will pass, and they’re banking on the fact that Uber remains a worthy investment.

Many investors believe that after the drama and shakeups of 2017, the company is poised for growth. It’s certainly been growing this year, with Q2 results showing revenue of $1.75 billion, as compared to Q2 2016, when the company’s revenue was a mere $800 million. Not only that, but global trips are up 150 percent from Q2 2016.

Uber has also received sign-off from the SEC to change the description of its business model to one in which the company is merely an “agent” and its customers are the drivers, not the passengers. This would mean Uber could report financial results without disclosing how much drivers are being paid, thus allowing it to report only the net transaction revenue that goes to Uber, leaving out the driver’s compensation. This change hints that an IPO may not be far off.

With numbers like that and the strong potential for an IPO in the near future, it’s no surprise that investors remain confident in the ridesharing company.

Investors Flock to Booming Companies

Big Business

Many small businesses believe that finding funding from venture capitalists is a great way to break into becoming a larger company. While this is certainly something that happens, recent trends seem to indicate that some venture capitalists are actually shying away from new companies and instead are going for the sure bet—already booming companies with an established history of success.

On the face of it, this type of shift makes a great deal of sense; why wager that some start-up will achieve success, when you could provide funding and get return on a larger name with pre-established success?

Below, I’ve gathered a quick round-up of successful companies and organizations that are receiving the type of funding I described above.

DocuSign

DocuSign is one of the successful companies that have recently received funding. DocuSign CEO Keith Krach has led the company to becoming the leader in Digital Transaction Management. Due to its success and exciting product, investors are wagering that the business of electronic documents will continue to grow in the future. On Tuesday May 12th, DocuSign raised $233 million in a new round of financing. Brookside Capital and Bain Capital Ventures led this round of funding. DocuSign also received another $85 million in March alone.

Lyft

Carl Icahn, an activist billionaire investor, has invested $100 million in ride-sharing startup Lyft Inc. Icahn believes that Lyft can thrive in a world that is also inhabited by Uber, another ride-sharing company that has been slightly more successful. The activist billionaire investor said he is backing Lyft because he consider its valuation of $2.5 billion a “tremendous bargain” compared to Uber, which by comparison has recently been valued by investors at $41 billion.

Uber

Speaking of Uber, the ride-share company has raised a total of more than $2 billion from investors in June and December last year. Wow!

Yik Yak and Zenefits

Yik Yak, the anonymous social media platform that has been gaining steam over the past year, collected $73.5 million in three financing rounds in seven months and Zenefits, a human resources start-up, raised $580 million in less than two years.

 

What do you think about the current trend of investors flocking to businesses with a history of success? Let us know in the comments section below!

Activist Investors Create Environments That Catalyze Change

Investor

The age of activist investors is here, and they are a different breed than the 1980s stereotype of Gordon Gekko’s “greed is good” mentality. In addition to getting more revenue out of big companies, activist investors also help companies shift toward long term investments.

That’s not to say the interest of an activist investor doesn’t cause some company concerns! Big names like Daniel Loeb of Third Point and Jeffrey Ubben of ValueAct definitely come to the plate as investors expecting big changes in the companies they set their eyes on. But often these changes are meant to see the company through the long haul.

“Unless you have one eye on the long term—how customers and products are affected—you will not succeed,” said Loeb. His Third Point is currently set to make waves in Japan with its latest investment in Fanuc Corp., an insular industrial robotics business with untapped earning potential.

Ubben’s ValueAct has also interacted with major players in long term investments, including a campaign with Adobe, which sacrificed short-term earnings to focus on broader, long term goals.

This ideology of promoting growth and change exists across the board with activist investors, who have become ever more prominent in the business world since 2009. The research firm FactSet estimated that 15% of the members of the S&P index of America’s biggest firms have encountered activist inventor campaigns since then. While some campaigns are more successful than others, a 1994-2007 study by Lucian Bebchuck of Harvard Law School found that activist interventions generally lead to sustained improvement in operating performance and shareholder returns. The study looked at 2,000 interventions by activist hedge funds and found that, in addition to providing positive impact, activist investors’ actions did not support the “pump-and-dump” theory—that the stock prices of companies with this sort of interaction drop dramatically after the investors leave.

“Our findings indicate that policy makers and institutional investors should not accept assertions that activist interventions are detrimental in the long run,” wrote Bebchuck.

While individual activist investors’ tactics may not always endear them to the companies they want to work with, increasing evidence suggests that the move toward long term investment campaigns could be good for everyone involved.

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