While I personally was unable to attend the annual Freightwaves Transparency19 conference this year I did watch a lot of the clips and I was fascinated by the shear volume of "Freight-tech"(I will abbreviate FT) companies coming out of the woodwork to help shippers ship product. We are in the "golden age" of FT launches, venture capital money and potentially IPOs.
Or, as the title stated, has Uber and Lyft killed the dream? More on that later but first, let's remind ourselves "how business works".
An entrepreneur comes up with a great idea and tries to get it to scale with a series of private fundings. Venture capitalists get in early, generally get seats on the board and hope for an eventual big pay day when the company is either sold or goes public. The company is built to scale (meaning it is generating cash - hopefully - or has a path to be cash flow positive. Then, the early owners need to take money out of the company for a variety of reasons by going public or selling. Here are the reasons they may want to extract money:
Family wealth planning - they generally have a lot of their wealth in the company and they need some back.
Pay Employees - Many early stage company employees are paid with options and they eventually want and need that money. This is a warning to many employees who get in too late in the game. If your options are valued right before the IPO then a lot of the time you are under water when it goes public (as are many Uber and Lyft employees).
All the juice is squeezed and the VC people want out. - Venture capitalists do not hold companies and eventually they want their money back. Once they believe they have "squeezed all the juice out of they idea they will want to exit.
Now, let's get back to Uber and Lyft and while I did not read the S-1 for the Lyft before it went public I did read the S-1 of Uber (skip the glitz slides and read the words) and it caused me to ask the question: "Who the hell would invest in this company"? Let's look at what the S-1 (The S-1 is a required SEC filing before the company goes public and it generally is the first time you get to see their financials - it is required reading if you are going to invest in IPOs) taught us:
Uber has lost over $3Bl in the last three years. And that is if you count a gain on divestiture and "other investments". If you look at just operations, in the last three years Uber has lost almost $10bl.
They continually discuss incentives paid to the drivers and to the customers. They are paying on both sides of the transaction.
There is very little path to profitability. They "sold" the IPO to the retail investor at exactly the right time (for them.
Now, what are the learnings from e-commerce? What we are starting to see is the "bricks and clicks" (Especially Wal-Mart) is the model to win. Unfortunately, Wal-Mart took far too long to "get in the game" and it may be too late. But, if Wal-Mart had responded back in 2013 as I had suggested when I wrote The Battle for Retail Sales is Really The Battle of Supply Chains, they would have killed it. Once Wal-Mart woke up I welcomed them back in 2017 in the article, "Welcome Back Wal-Mart. We Missed You Over the Last 5 Years".
Which brings me to J.B. Hunt and their work with Box and J.B. HUNT360. That is the winning formula! It is the "Bricks and Clicks" of the freight world. Like retail, eventually everything gets down to assets. Someone needs to build stores and warehouses in retail and in freight someone needs to own the boxes, trucks and have drivers. J.B. Hunt is showing they learned the lesson of Wal-Mart (Don't cede any ground to the tech guys), they jumped in early, they disrupted their own business and they are now the leader in this space for the asset players.
What will come of all this? I believe J.B. Hunt will continue to drive their leadership position further and the asset guys, to catch up, will have to buy a number of these FT companies. Which means the VC population will get what they want but the asset guys will pay a huge premium for not getting in early.
So, let me summarize:
Too much money chasing too few ideas... the "new" ideas are starting to be "me too's" (How many apps can have a competitive algorithm just to find an available truck)?
The FT VC population will want to sell.
The Asset guys will find out they are getting killed by the "trucks and clicks" model of J.B. Hunt and this will drive them to pay exorbitant prices to get the tech quick to catch up.
JBHunt, by innovating early and fast will win this game big just like they did with intermodal.
Finally, in the UBER S-1 we get our first public glance of UBER Freight and I am amazed at how small it is. Now that UBER is public we will get to see more and more of their financials. They believe the industry is moving to an "On-Demand" industry. I find this hard to believe as big shippers need predictable freight and solutions like the J.B. HUNT 360Box where you get access to trailer pools. I could be wrong, but I do not see a huge future for this.
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