Calling it “the WeWork that came public,” former hedge fund manager Whitney Tilson laid out a case for shorting ride-hailing company Uber at the annual Robin Hood Investors Conference on Monday.
Tilson, who is now the founder and CEO of Empire Financial Research, pointed out that Uber went public in May at $45 per share, and the stock is down 27 percent since then, according to slides of his presentation that Institutional Investor has obtained. (The event is closed to the public.)
“Every short seller I know is upset that WeWork cancelled its IPO because it would have been a magnificent short,” he said, arguing that the two companies have much in common.
These, he said, include a “huge amount of capital raised pre-IPO at big valuations…no/low barriers to entry…high and accelerating cash burn” and “a narcissistic, hard partying founder.”
A number of big hedge funds were invested in Uber when it was the private, but soon they will be able to sell their shares. After the company reports third-quarter earnings November 5, the lockup will expire, “flooding the market with four times the current float, equal to nearly half the market cap,” Tilson said.
Last year, Uber had an adjusted EBITDA loss of $1.8 billion. It has a $57 billion market cap, with $6 billion of debt and $8 billion in cash.
It is facing several headwinds. Notably, California — which represents 17 percent of Uber’s rides globally — passed a law that will require it to treat its drivers as employees, not independent contractors. Uber is facing similar regulatory and union push-back in New York City, and elsewhere in the U.S. and globally, specifically London.
The California law becomes effective on January 1, and it could raise driver costs by 30 percent, according to Tilson.
Meanwhile, Uber is continuing to have turnover at senior levels of management and has laid off 15 percent of its staff.
Tilson pointed out that 31 unicorns — private companies valued at least $1 billion — and 12 “super unicorns,” those that have raised $1 billion in private capital, have come public since 2015. While the median return for the unicorns is 2 percent, the 12 super unicorns have not done well, with a median decline of 20 percent. Three fourths of then have produced negative returns, Tilson said.
The stock price of Uber, which initially fell on Tilson’s talk, rose on the announcement of a suite of new financial services called Uber Money, but ended the day little changed after hours.
On a day when the SP 500 hit a record, other speakers found more stocks to buy, according to those in attendance. (Tilson also had a favorite long: the stocks of Fannie Mae and Freddie Mac.)
Alex Sacerdote of Whale Rock Capital Management pitched Carvana, an e-commerce platform for buying and selling used cars, and the stock jumped almost 5 percent. The stock has been a popular one for hedge funds; it was in 45 hedge fund portfolios at the end of the second quarter, according to Securities and Exchange Commission filings.
Glenview Capital’s Larry Robbins said he was bullish on the new Valeant, which has been renamed Bausch Health, as well as Meritor and Takeda Pharmaceuticals. Glenview had previously disclosed all three in SEC filings.
Lauren Taylor Wolfe, who co-founded the hedge fund Impactive Capital this year, was the one to watch. Since last year at the Robin Hood conference when she pitched Brazilian software maker TOTVS, it gained 134 percent to be the winning trade of the conference, according to individuals who heard her speech this year.
This year, she pitched Asbury Automotive Group, a Georgia based auto dealership. Shares rose 1.51 percent.
