March 29, 2019
This would be a useful follow up to an NYT article telling readers who stands to make lots of money if these companies command high prices in IPOs, as seems likely to be the case. Some of these companies, like Uber, have never made a profit, and none of them make profits that could come anywhere close to justifying their IPO price.
Furthermore, at least in the case of Uber and Lyft, their business model seems to depend on breaking the law. Specifically, they hope to save money by having their drivers classified as independent contractors, which gets them out of paying for unemployment insurance, Social Security, and other taxes and responsibilities.
If we assume that these companies either don’t become profitable or just earn small profits, then at some point their stock prices are likely to come crashing down to earth. (Think of the Internet companies of the late 1990s.) In that case, the people who buy the stock after the IPOs will be big losers. This is likely to include many pension funds, many workers with 401(k)s invested in the stock market, and a few suckers buying individual stocks, who think that these companies will be the next Apple.
Hyping companies like Uber in the business press is a great way to transfer income upward. It would be good if it stopped doing it.
Comments