There is little debate that ride-sharing pioneer Uber Technologies is spearheading the disruption of traditional modes of consumer transportation.
The Uber name has become synonymous with its first-mover advantage, just as Xerox and Apple’s iPhone were for earlier generations of different technologies.
Uber’s long-term potential has attracted a blue-chip roster of investors for its private stock and debt, including Stephen Mandel Jr.’s Greenwich, Connecticut-based Lone Pine Capital; Christopher Hansen’s San Francisco–based Valiant Management; and Paul Hudson’s Greenwich, Connecticut–based Glade Brook Capital Partners.
So, when we learned last week that Uber lost about $1.3 billion in the first half of the year, it was a reminder that the company remains an ambitious start-up with many challenges and eager competitors tailing its rear bumper.
One group that may have been surprised by the financial report were those who several years ago bought into private funds designed by Glade Brook to invest in Uber.
The losses, revenues and other metrics made public last week all came up short of the detailed projections provided by Glade Brook two years ago to potential investors and obtained at the time by Alpha.
Glade Brook is an investment firm headed by Paul Hudson, sometimes called a Tiger Grandcub because he was a former managing director at Chris Shumway’s Shumway Capital Partners. Shumway himself is a Tiger Cub.
Glade Brook initially started as a hedge fund firm but has slowly morphed into more of a private equity/venture capital firm.
In December 2014, Glade Brook raised $141.5 million for Glade Brook Private Investors V, which it formed to specifically invest in Uber.
In 2015 the firm launched Glade Brook Private Opportunities Fund, designed to focus on four to six “big global ideas.” Uber and messaging company Snapchat were the initial investments.
So far, Uber’s financials are currently missing the projections peddled by Glade Brook when it raised money for Private Investors V.
According to last week’s Bloomberg report, which cited Uber’s head of finance, Gautam Gupta, the company lost about $520 million before interest, taxes, depreciation and amortization in the first quarter of this year and more than $750 million in the second quarter, for a total first-half loss of about $1.27 billion.
Bookings amounted to more than $3.8 billion in the first quarter and more than $5 billion in the second quarter, while net revenue came in at roughly $960 million in the first quarter and $1.1 billion in the second quarter. This looks like pretty steady growth.
The report also noted that in 2015, Uber lost at least $2 billion before interest, taxes, depreciation and amortization.
Altogether, Uber has lost at least $4 billion since its 2009 creation, according to the report.
All of these metrics suggest that Uber has not lived up to Glade Brook’s expectations when it was soliciting investors for its private fund.
At the time, Glade Brook had projected that 2016 would be the year Uber would turn cash-flow positive for the first time. It forecasted a little more than $1 billion in earnings before interest and taxes for the full year, compared with a loss of $371 million in 2015.
Glade Brook also expected the firm to report $264 million in free cash flow in its first positive year.
Glade Brook based these bottom-line figures on estimates that net revenue would come in at $8.6 billion for all of 2016, while bookings would amount to more than $34.4 billion.
Obviously, Uber is way behind Glade Brook’s projections on the top line.
When the projections were circulated, Glade Brook expected that by 2018, Uber would be generating $9.3 billion in free cash flow and nearly $7.3 billion in net income on 35.6 billion in revenues.
The investment firm also told clients in its offering document that it expected Uber to go public in 2016. At that time, it planned to distribute the public shares to investors in its private fund.
Well, that’s apparently not happening either.
Looking ahead, there are several reasons to be optimistic about Uber’s fortunes, however.
For one thing, it is the world’s largest ride-sharing company and the most recognizable name in the industry.
In July, Uber worked out a deal with Chinese rival Didi Chuxing. Under their truce accord, Uber received a 17.5 percent stake in Didi and a $1 billion investment from its rival, while Uber agreed to leave the Chinese market.
Meanwhile, the report notes that after raising more than $16 billion in cash and debt, Uber is worth an astounding $69 billion.
At least one firm has disclosed that its paper profit on its Uber investment has been substantial.
Valiant currently devotes more than 25 percent of the roughly $2 billion invested in its hedge funds to private investments it calls side pockets. According to the firm’s fourth-quarter 2015 report detailing its private investments, in December 2014 it invested a total of $42.1 million in Uber’s preferred Series E. As of December 2015, the report said the investment was worth $60.8 million. This amounts to a 44 percent gain in a year or so.
In Valiant’s second-quarter 2016 report for Valiant Capital Partners — Valiant’s domestic hedge fund — the firm noted a similar gain of 44 percent for its investment in Uber over the 18-month period going back to December 2014.
“Having engaged with the company and followed management’s superior execution over the last several years, we are excited to invest at what we believe is a low single digit multiple of 2018 free cash flow,” Valiant told investors in its fourth-quarter 2015 report.
Investors’ optimism may eventually be fully rewarded. But apparently, it will take longer than originally expected.
