The Great Spectator Sport of Corporate Dreams

This company sounds like exactly what the world needs to solve our supply-chain woes…

It calls itself a “technology platform that uses a massive network, leading technology, operational excellence and product expertise to power movement from point A to point B.”

That type of platform seems like it could help unload the waiting ships in the world’s harbors. It could help airplanes and crews get to where they’re needed most.

It could help rail traffic move more efficiently. And perhaps it could even help drivers steer clear of traffic jams.

That all sounds pretty amazing, right?

Well, there’s a problem…

This pie-in-the-sky, movement-powering technology platform doesn’t exist.

This language comes from Uber Technologies (UBER). It’s part of the company’s annual 10-K filing with the U.S. Securities and Exchange Commission.

In a 10-K, a company tells investors about the current business – and its dreams for the future. That last part is important…

Uber might dream of doing all sorts of things. But at least for now, it’s only a taxi service.

Now, to be fair, Uber isn’t lying or exaggerating. It is doing exactly what it says in its 10-K. And it is trying to become a food-delivery and freight-shipping powerhouse.

But the thing is… that might be why the company is losing so much money.

And that brings us to a valuable lesson for investors…

You see, Uber’s dreams involve a lot of capital and expenses. But not everything produces much revenue…

In 2021, Uber reported about $1.6 billion in earnings before interest, taxes, depreciation, and amortization from “mobility.” That’s the name the company gives its core, taxi-like business.

But in the same year, it lost $489 million from food delivery, freight, and “all other” businesses. And it burned almost $1.9 billion on general and administrative costs, as well as research and development.

In other words, it looks like Uber’s core business could be profitable if it didn’t dream so big.

But instead, management seems mesmerized by PowerPoint jockeys showing a path to world domination. And investors aren’t falling in love with those types of dreams today…

Uber got caught up in the market’s shift away from so-called “growth stocks” in recent months. The stock is down roughly 64% from its February 2021 peak.

Of course, Uber isn’t unique with its grand visions. And sometimes, these plans do work…

Amazon (AMZN), for example, started by selling books online. Now, the company sells everything. And it makes even more money through its “cloud” services.

But unfortunately, grand visions backfire all too often as well…

America Online’s takeover of media giant Time Warner in the early 2000s failed. It’s now known as one of the worst mergers of all time.

The two companies didn’t realize their dreams of creating a media and Internet empire. And as a result, America Online’s investors lost big.

Now, the next chapter of Uber’s story isn’t written yet. And we can’t predict the future.

The company might turn out well like Amazon. And it might avoid wrecking investors like America Online.

But let’s not rush to figure out whether Uber’s grand plan will succeed or not…

Our Power Gauge system currently ranks Uber as “very bearish.” It’s warning investors to watch from the sidelines as the company tries to fulfill its big dreams.

That’s fine, though…

Corporate dream-building is a great spectator sport. As investors, we don’t need to risk our hard-earned wealth.

Instead, we can wait and see how the next chapter of this story plays out. And the Power Gauge will show us when it’s safe to jump into the game.

Patience makes for dull conversation. But in the end, our portfolios will appreciate it.

Good investing,

Marc Gerstein

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