Why Uber Bombed

I told you to stay away from the Uber IPO!

The technology industry is just one piece of the pie and is now being utterly eclipsed by geopolitics left, right, and center.

At times like this, fundamentals and growth rates go out the window.

It’s a shame because growth rates for the best of breed in technology are still nothing short of spectacular.

The elevated risk here is that frontier companies such as Uber (UBER) become marginalized and their narrative starts to turn into a version of technology that is too expensive and unable to pin down expenses.

The easy money in tech is no more as we are barreling towards a global slowdown with China and America doing their best to move forward the global recession into the beginning of 2020.

So when Uber prints $5.2 billion in losses from the prior quarter which is a sequential increase of 30%, the vicious sell off in shares epitomizes the souring of sentiment that is pervading through the equity landscape.

The Uber’s earnings call was summed up when CEO of Uber Dara Khosrowshahi chimed in saying, “No doubt in my mind that the business will eventually be a break even and profitable business.”

These vague statements that offends time-sensitive hawks is a recipe for disaster in August 2019.

The purse strings of tech are not nearly as loose as they once were even 6 months ago.

Investors want profit making enterprises mixed with accelerating revenue growth – put your money where your mouth is type of ventures.

This has reduced the appealing side of tech down to outperforming software companies and even they are battling in the trenches as the wave of geopolitical risk-off sentiment crushes shares.

I would sell every Uber dead cat bounce because there is no way that Uber shares will surpass its all-time high of $46.38 this year.

The surge in bond prices show that risk appetite has dried up and Uber is unfortunately at the opposite end of the risk appetite spectrum.

I would also put its brother in arms Lyft (LYFT) in the same boat.

Lyft loses less money but are a speculative bet to “eventually” make money, and that is exactly what people don’t want to hear right now.

It will be a slippery slope for any tech company further out on the risk curve to invest in a business model that doesn’t turn a profit.

As it stands, Uber and Lyft were lucky to go public when they did, barely getting the IPOs over the line.

If they waited a few more months, they would have had to postpone it.

Expect meager M&A movement moving forward as the global slowdown will test the business models of every tech company and that means the weakest will need to restructure, go under, or even sell themselves at garage sale prices.

It is time to hunker down in tech shares and not bet the ranch.

The positions I have are short-dated deep in the money call spreads in software stocks that are bets that shares won’t go lower in a straight line.

I have fused that with positions in semiconductor stocks from the short side as a tech global slowdown means less demand in consumer electronics which hoover up semiconductor chips.