Who lost Uber (UBER) ? Who created this massive bungle that ended up causing everyone who bought in the public market to be a loser?
There are thousands of fathers of defeat, but some fathers are a lot more defeatist.
First and foremost it's Uber itself, not Uber the stock, but Uber the company. When you come public you are supposed to come public when your business is at its most torrid.
Uber was not like that. Right before it came public Uber had what can only be described as a decelerating quarter. It was totally reminiscent of the Facebook (FB) deal, which came right when the cellphone became the most prominent way to keep track of your Facebook feed. They had no strategy for mobile. It was, in retrospect, doomed to fail until they came up with one, which is what happened after the stock was cut in half.
I hate to be too much of a doomsayer but the Facebook paradigm is now front and center: if you don't have a clear path to make a lot of money, which neither Facebook with the new mobile threat, nor Uber with losses for as far as the eye can see and then some - then your stock is slated to go lower no matter what. Making matters worse there was enough verbiage about competition and promotion that the underwriters, in retrospect, should have pushed back hard, especially after the collapse of Lyft (LYFT) .
But could they? In retrospect perhaps the crux of the defeat had to do with a slew of Unicorn valuations, in this case the $500 million investment by Toyota (TM) into Uber ostensibly to be used for self-driving cars came last August at $76 billion. That price came when Uber's trajectory was still roaring higher.
Therefore the underwriters were caught: how can you value something north of $76 billion, the last big investment, if the company's not doing as well as it was back then. The answer was simple: you couldn't which is why the $8.1 billion valuation, the $45 price, could not hold.
But do you want to have a "down round" from the last one? The propensity is for that to NEVER happen no matter what. I think the $45 was a compromise between Uber management and the underwriter, Morgan Stanley (MS) , which bet that the public would thirst for shares in a well-known company.
The rough things for Morgan Stanley? At that price it seems that unless the public gets involved on the deal, on the actual deal at $45, there wouldn't be enough money and, as we heard, after the deal, it was a success for Uber to get that money.
That, of course is hogwash because the CEO, Dara Khosrowshahi, told Andrew Ross Sorkin and me that he wanted a share price where everyone won, which means one that would open at the top of the range of about $50, which would have been terrific
But that was never going to happen. You know why? Because if you asked actual retail investors and, even Uber drivers, they could get in at the $45 price.
Once you get retail in, you are finished when it comes to the pop. It can't happen. It can happen because of another father, the Trump tariffs, which made the retail investor skittish and turned her from holder to seller, especially when they saw that the deal was immediately being pre-priced on the floor at $45.5 -$46. That took out the $50 ideal price for all. It was too much to ask for that cohort who should never ever have been given stock to begin with which shows there wasn't enough institutional demand at $45 because the institutions knew the business was slowing.
What should have happened? The underwriters should have broken the Toyota price and found a level where NO retail got stock. They must have known that when retail got stock - which had to happen because the last round of shareholders and Uber were most likely sensitive to a down public round.
Believe me there is a level where retail can't get stock, that's the level that Morgan Stanley had to price it and it didn't. We will not know why because that will be coveted info.
When we got the $45 opening price talk, I checked with a number of floor brokers. Now they don't handle the big orders but they did, to a person, tell me when it was $45 bid that the deal was finished as buyers turned sellers.
When you hear that imbalance there's no way that Morgan Stanley could stabilize whatever happens. Their only hope was to open it so low - something easy to do because they can walk away - that you wash out the sellers and THEN push it up.
But that there was still too much stock for sale because of the day getting uglier from the tariff breakdown, and because those weak retail hands who should never gotten any merchandise but got some because of the reluctance to have a down round, panicked and blew out.
An open lower, clean up the sellers initially worked. The stock opened at $42 and then was walked up to the $43 and change. But it couldn't get back up to $45
The result? The down round told the truth. The deal had to be priced lower than that round because of the weak last quarter. Maybe the real deal price was well through the round. But because it came later than it should - which would have been the quarter before the last one - there were more smart sellers and fewer over-the-transom market orders than Morgan Stanley expected. But they should have known because they gave people who shouldn't have been on the deal stock.
So there was no need for market orders - it was all available. Someone had to lose and it wasn't going to be the last round of buyers.
And that's why the so-called long-term holder is supposed to hold up the stock. There just aren't enough of them. There never were. Not here. Not at this price. Not with these losses. A lower price, much lower, would have found buyers. But it couldn't happen because of the unicorn factor and the slower quarter and the president's tweets.
So the real culprit? The Process. The process that took too long, and would have led to losses anywhere near these levels. They, meaning Morgan Stanley, misjudged the transom demand. And it was all over but today's shouting.