The much-anticipated initial public offering (IPO) for Uber failed to live up to the hype. Being priced at the lower end of its potential range did not help, as the stock plunged more than 7 percent in opening trading.
Uber’s IPO had been hailed as the most exciting since Facebook. However, rather than following the social networking giant, Uber followed its competitor Lyft. Lyft also ended trading down 6.9 percent, leaving many questioning whether any profits were possible in the industry. Jordan Stuart, portfolio manager at Federated Kaufmann, said:
“If a venture capital investor wants to burn cash they can do that as long as they want, but once you get to the public markets you have to show profitability or a path to it.”
Responses
For its part, Uber has suggested that the stock price is simply a bump in the road. Uber’s founder and CEO was quick to point out that the race for a strong stock price is a marathon, rather than a sprint.
“My reaction (to the share price) is if we build and build well, shareholders will be rewarded. We’re certainly not measuring our success over a day, it really is over the years.”
Others, though, were less supportive of the ride-sharing application. The company has been hurt by a number of scandals and corporate losses. According to Robert Johnson, professor of finance at Heider College of Business, Creighton University in Omaha,
“The business is unprofitable, new entrants can enter the market, there is potential regulatory risk, and it is very price sensitive. What is there to like about this opportunity?”
An Open Door?
While Uber’s peer-to-peer (P2P) structure has been used by a host of applications, the stock corrections reveal an opening in the marketplace. While the overall business model may be interesting, a decentralized solution would better meet client expectations.
The company has not created lasting profits largely because the P2P structure assumes value. For drivers in the Uber system, the company’s profit cuts deeply into personal returns, leaving them pinching pennies. For Uber riders, the cost of a drive continues to increase in the face of corporate necessities.
A decentralized solution using blockchain technology to connect users and drivers directly would make good sense. Eliminating Uber-style companies as a third-party middleman may spell disaster for stock investors, but could create a scenario for P2P sharing applications to thrive.
Do you think a decentralized system is what Uber needs to create real profits, or is the P2P structure doomed to fail regardless? Let us know your thoughts in the comments below!
