How to steal a billion


Hello and welcome to Oversharing, a newsletter about the proverbial sharing economy. If you’re returning from last week, thanks! If you’re new, nice to have you! (Over)share the love and tell your friends to sign up here.

Oversharing was off last week while I was on vacation in Ireland, so this issue is a recap of the past few weeks. Also, I am at Web Summit through tomorrow, moderating some panels, dodging the overly enthusiastic badge scanners, and generally hanging around in a green media wristband (“VOID IF REMOVED OR TAMPERED WITH”). If you’re also here and want to meet up, get in touch on Twitter or email me at ali at qz dot com.

I spent all vacation thinking about it and decided: Adam Neumann is a genius. Maybe an evil genius, probably a charlatan, undoubtedly the corporate villain of our lifetimes, but brilliant all the same. He saw an excess of capital in Silicon Valley and a raw, unsatisfied ambition in SoftBank’s Masayoshi Son and his $100 billion Vision Fund, and he mined it for all it was worth. Adam Neumann built an office-rental empire with spa water and beer-on-tap and talk of unlocking superpowers and elevating global consciousness. He did all this while swigging tequila shots, surfing with Laird Hamilton, surfing in the Maldives, and smoking weed on transatlantic flights.

When, in the end—or maybe the middle, the story isn’t over yet—it all came crashing down, Adam had already taken more than $700 million off the table. His final exit package, as WeWork prepared to cut thousands of jobs (delayed, because it couldn’t afford the severance costs) and took thousands of formaldehyde-contaminated phone booths out of service, included a $185 million “consulting contract.” SoftBank’s Marcelo Claure reportedly told WeWork employees that the firm needed to wrest control from Neumann, and doing so came at a price.

Yes, Adam Neumann lost his company, but in the final tally he is still winning. He played capitalism to its most absurd end, and drifted away with a golden parachute: an exit package worth more than $1 billion. SoftBank, on the other hand, plowed more than $9 billion into WeWork before the WePocalypse, when it was theoretically still valued at $47 billion, and will spend roughly another $10 billion bailing the beleaguered company out. That’s an investment of around $19 billion in a company that is now valued below $8 billion; an investment “bigger than the GDP of my country where I came from,” as Claure told WeWork employees. Masa Son is $6 billion poorer. A panel talk he gave last week in Riyadh was met by a nearly empty room. “We created a monster,” Son has reportedly said of WeWork.

At WeWork, meanwhile, executives have fled. Employee stock options are underwater, and their jobs in jeopardy. “Are there going to be layoffs? Yes. How many? I don’t know. It’s day one,” Claure said at the company’s all-hands meeting last month. “We’re going to make sure that they leave with dignity, that we’re taking proper care of them, and that we’re rewarding them for them having taken a chance on WeWork.” You know what’s better than dignity? An $185 million consulting fee.

Uber Eats.

People are worried about Uber Eats. By people I mean analysts, who barraged Uber CEO Dara Khosrowshahi and chief financial officer Nelson Chai with questions about the food delivery service during Uber’s third-quarter earnings call yesterday.

Uber reported $645 million in Eats revenue on $3.7 billion in bookings in the quarter ended Sept. 30, up from $394 million on $2.1 billion in the same period last year. That means Uber kept as revenue 17.6% of its Eats bookings, the best take rate the company has reported since the fourth quarter of last year, but not nearly as good as the roughly 18-20% share it booked for most of 2017 and 2018. Khosrowshahi said Uber is targeting overall EBITDA profitability for the full year 2021.

“Our strategy for Eats is simple,” Khosrowshahi said on the call. “Invest aggressively into markets where we’re confident we can establish or defend no. 1 or no. 2 position over the next 18 months.”

Uber pulled its Eats business from South Korea last month amid intense competition. The top food delivery app there is Woowa Brothers, which Reuters reported has a 75% market share. Chai said in his remarks to investors that Uber’s decision to exit South Korea “demonstrates our willingness to exit markets with low ROI.”

Chai said Eats is “adjusted EBITDA margin-positive” in nearly 100 cities, and that more than half of that adjusted margin loss comes from 15% of Eats gross bookings in hyper-competitive markets. “The Eats market will continue to be competitive as players have raised funds to invest in growth in this fast-growing category,” he said, likely alluding to the $225 million raised in September by competitor Postmates.

Analysts weren’t convinced. “We did see a kind of disappointing Eats in the quarter from a gross bookings basis,” said Oppenheimer’s Jason Helfstein. “Can you guys talk about how far off the U.S. business is from breakeven?” asked Barclays’s Ross Sandler. “Not to beat a dead horse here on Eats, but does profitability in 2021, the way you're defining it, requires profitability or at least breakeven in the Eats business by that date?” asked SunTrust Robinson Humphrey’s Youssef Squali. (It does not, Chai said.)

They are right to be worried. An August report from investment firm Cowen estimated Uber Eats lost $3.36 on every order and would continue to lose money until at least 2024. Uber has so far been unable to wean itself from heavy spending on incentive pay for drivers, which cost it $247 million in the latest quarter, up from $200 million a year earlier.

More problematically, it remains unclear how much the typical consumer is willing to pay for food delivery, which is still something of a luxury service. A June 2016 report from Morgan Stanley found that 71% of people said they would spend no more than $5, excluding tip, for a $30 order of food that was “guaranteed to be delivered fast.” Fifteen percent said they refused to pay delivery fees at all.

“The Uber Nightmare Continues,” read the subject line of a research note from Dan Ives at Wedbush Securities, who graded Uber’s third quarter a “B-” and noted that Eats “remains a drag.” Is a nightmare really only a B-? Grade inflation, it has even hit analyst notes! As of early afternoon, Uber stock was down nearly 10% and trading below its all-time closing low of $28.87, which sounds more like a C- or D to me.

Cash positions.

Back in August, the Wall Street Journal highlighted Airbnb’s “strong cash position.” “Airbnb’s finances tell a different story than other initial public offerings from large technology companies,” the Journal wrote, contrasting Airbnb with cash-burning firms WeWork and Uber. The odd thing about the Journal article was that it never actually stated whether Airbnb itself was profitable, which, as I said at the time, made me think it probably wasn’t. Profitability is so rare among buzzy tech startups and so popular among public investors, based on the performance of this year’s tech IPOs, that you’d think any profitable startup would shout it from the rooftops.

Anyway, The Information got to the bottom of that:

Airbnb’s operating loss more than doubled in the first quarter to $306 million from the year-earlier period, previously undisclosed financial data shows, a result in part of a sharply increased investment in marketing. While that spending could bring in a lot of new business, prospective investors could be unnerved if subsequent quarters show similar losses. That could pose an issue for Airbnb, which is preparing to go public sometime next year.

The operating loss came as Airbnb raised sales and marketing spending to $367 million in the first quarter, up 58% from the same period a year ago. Airbnb also ramped spending in product development (up 51%) and operations and support (up 30%).

Airbnb last month announced its intent to go public in 2020, following pressure from employees to pursue an exit. Airbnb was founded in 2008, making it old for a ‘startup’ even by today’s standards of companies that stay private longer. Airbnb employees are anxious to see their paper gains turned into actual cash, a long-running source of tension at a company that promotes values like “create a world where anyone can belong.” Airbnb discussed private stock sales for employees as early as 2014, and again in 2016, in an effort to calm employees frustrated by the company’s apparent disinterest in going public. That tension has recently reached new heights, the New York Times reported last month, with some employees holding equity set to expire—aka, become worthless—in November 2020 and mid-2021. Airbnb CEO Brian Chesky has said the company has an “infinite time horizon,” a statement that seems unlikely to have reassured employees with equity on a finite time horizon.

Scooters!

Bird is still up to its old, Uber-like tricks:

Late on Oct. 7, the mayor of Luxembourg City received an email from U.S. startup Bird Rides Inc. saying it would roll out its service overnight. The next morning, dozens of electric scooters lined the pavements. Just over a week later, on Thursday, Bird was forced to pause its service.

“It was a cloak and dagger operation Monday night, without anyone having really been informed,” said Dany Frank, spokeswoman of the Luxembourg Transport Ministry. “The way in which it was done wasn’t great.”

Luxembourg mayor Lydie Polfer has reportedly rejected requests from seven scooter companies over the past two years, including one from Bird in June.

Uber pioneered the strategy of launching first, and asking for permission later (or never). It worked well in the US, carrying Uber to a dominant share of the ride-hail market, but proved less effective and burned far more bridges in Europe, where regulations are generally tighter and regulators less easily persuaded to abandon their existing rules in the name of ‘technology’ and ‘progress.’ Eventually, Uber learned from this. The company has been much more deliberate in its pursuit of micromobility services like bikes and scooters. Uber’s rollout of Jump electric bikes in London has been slow in part because Uber has carefully sought permission from local councils. (Jump e-bikes also recently landed in Rome and Rotterdam.) It is launching electric mopeds in Paris in partnership with French startup Cityscoot.

Bird founder Travis VanderZanden, himself an Uber alum, doesn’t seemed to have learned the same lessons, as the Luxembourg launch indicates. VanderZanden famously sent a LinkedIn message to alert the mayor of its hometown of Santa Monica to a broad deployment of scooters. “Anytime there’s new innovation there tends to be a gray area,” he told CNET in 2018. “Because of this gray area, there weren’t regulations that made sense specifically for us.”

Elsewhere in scooters, Lime could book an operating loss of more than $300 million this year on about $420 million in gross revenue, The Information reported, the cost of bad scooternomics:

The big loss in 2019 is largely due to significant expenses such as the depreciation of its scooters and how much it costs to run warehouses that repair and position the vehicles. The company has projected it would cut operating losses in half next year as the reliability of its scooters improves, while pushing gross revenue past $1 billion, according to the financial information.

Depreciation, or how long scooters last, is arguably the most important factor in calculating the profitability of scooter businesses. The early, off-the-shelf consumer hardware used by most scooter companies was poorly adapted to a shared model and broke down or wore out quickly. Scooter companies are now pursuing more durable designs with features like airless wheels, improved suspension, and swappable batteries. Berlin-based Tier mobility, for instance, just launched scooters with swappable batteries and is selling refurbished scooters from its current fleet to private customers in Germany for €699.

The trouble is that designing new scooters and optimizing operations takes cash and time, and companies like Lime have to keep the service running with the best hardware and systems they have in the meantime. Lime raised $310 million early this year at a $2.4 billion valuation. The Information reported it has spoken with investors about raising another $500 million at a slightly higher valuation, after burning roughly $200 million in the first seven months of the year.

At Micromobility Europe last month, I chatted with Wayne Ting, global head of ops and strategy at Lime, and formerly of Uber, about whether there is such a thing as too much capital, and if it’s always good to raise money. “I think the good thing about capital is that it allows companies who may need time, and experience, and just know-how to get good. It allows them that runway, so that they can ultimately become a profitable business,” he said. “But when we have too much capital, you actually take away the discipline that ultimately makes a good business.”

I’ll be talking with Lime co-founder and CEO Brad Bao in a “fireside chat” at Web Summit tomorrow if you are here and want to swing by.

Other stuff.

Uber’s Quest to Become the West’s First Super-App. House transport chair blasts Uber, Lyft for skipping congressional hearing. Airbnb probed by UK tax authorities. UK opens formal probe of Amazon-Deliveroo deal. Uber expands financial services push with Uber Money division. Yandex in talks for IPO. Ola bets on cloud kitchens. Zoox raises $200 million for self-driving cars. Marseille first major European city to limit e-scooter licenses. Uber tests ‘surge pricing’ for scooters. Los Angeles suspends Uber’s bike, scooter permits. Uber threatens to sue Los Angeles over data-sharing requirements. BlaBlaCar eyes commutes. Grab integrates with Booking.com. Lyft launches new, cheap subscription. Vacasa buys Wyndham Vacation Rentals for $166 million. Fountain gets $23 million for gig hiring. Soho House raises $100 million, insists it’s not WeWork. Wag exploring a sale. Amazon makes grocery delivery free for Prime members. Vacasa raises $320 million at unicorn valuation. Just Eat board rejects hostile takeover offer from Naspers. Instacart shoppers protest tipping policy. Why fleet-based car-sharing doesn’t work. What it’s like to work on Lime’s overnight scooter retrieval team. How progressive is the Wing, really? Bay Area Uniqlos sold out of Elizabeth Holmes costumes. What we can learn from natural short sleepers.

And a correction.

Last issue I said tenants at the new DoorDash Kitchens project will pay zero delivery fees through the end of this year. The $0 delivery fees is for customers, not tenants.

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Send tips, comments, and golden parachutes to @alisongriswold on Twitter, or oversharingstuff@gmail.com.