What do WeWork, Uber and Lyft Have In Common?

The answer to this question may become vitally important to the global financial system.

Some of you may guess that they are all Tech IPO's in 2019.
Except that WeWork hasn't managed to go IPO yet. I'll get back to that point shortly.

Some of you may guess that they are all losing money hand-over-fist, and you would be right.

Uber reported a net loss of $5.24 billion for its second quarter of 2019, blaming stock-based compensation costs. By comparison, Lyft lost $644.2 million in the second quarter, representing a significant jump from the $178.9 million it lost a year earlier.

A single company losing more than $5 Billion in a single quarter would be a staggering amount for any semi-healthy company. But Uber has never came close to making a profit at any time, and is now laying off 8% of its workforce just a few months after going public.
To make matters worse for Uber and Lyft, California is about to pass a bill that would correctly identify their drivers as employees. While this is good for drivers and workers in California, it's not good news for Uber and Lyft.
WeWork may be in even worse shape. Its losses are nearly as big as its revenues (in 2018 it lost $1.61 billion on $1.82 billion in revenue).

However, while "they're all losing buttloads of cash" is technically a correct answer, it isn't the answer I was looking for.

The answer I was looking for is: Softbank.
Softbank is a financial conglomerate based in Japan.
It' the 36th largest public company in the world, and the 2nd largest publicly traded company in Japan. In other words, it's enormous.

It's also the biggest investor in Uber.

SoftBank, which poured about $7.6 billion into Uber in early 2018 after the ride-hailing company suffered a series of bruising gaffes, has seen the value of its stake dwindle by the day...In total, SoftBank invested $7.65 billion. That stake, when factoring in the $245.3 million in shares SoftBank sold in the IPO, is currently worth less than $7 billion.

The stock has lost close to one-third of its value since its May IPO.

Losing a third of its price in a few months is bad, but Lyft has plunged 50% since it went public in March.
But that is only part of Softbank's losses this year.

SoftBank bundled its losses from Uber along with other investments in its latest financial report for the three months ended June 30. The company recorded unrealized losses of 195.3 million yen (about $1.84 billion) for “the decrease in the fair values of investments in Uber and others.”

Even enormous financial conglomerates have trouble handling losses of that size.

And yet that isn't the worse part. In fact, that isn't anywhere remotely close to the worst part for Softbank.
The worst part is WeWork.

WeWork’s decision to delay its public share offering after a lacklustre response from investors comes as a blow to Softbank, the Japanese investment giant that has thrown serious sums at several successful tech “unicorns” – and watched as some companies it has backed have floundered.

The WeWork delay saves Softbank, the brainchild of Japanese billionaire Masayoshi Son, from having to write down the value of its $10.65bn investment in WeWork through its Saudi-backed Vision Fund.

Last week Softbank was reportedly urging WeWork, or the We Company as it is now known, to postpone its offering. Valuation of the company dropped to around $5bn- $10bn, less than a quarter of the $47bn originally envisioned.

Softbank is looking at somewhere between $2 Billion and $5 Billion in losses on WeWork alone (my guesstimation).
How serious is this? Bad enough to be concerned.
softbank.PNG

Masayoshi Son, who built a $15.2 billion fortune investing in tech startups like Alibaba Group Holding Ltd., is betting on himself more than ever, even as his empire shows signs of vulnerability.

The SoftBank Group Corp. founder has pledged 38% of his stake in the Japanese firm as collateral for personal loans from 19 banks, including Credit Suisse Group AG and Julius Baer Group Ltd., according to a June regulatory filing. That’s up from 36% at the start of the year and triple the level in June 2013.

“It lets him monetize a large share of his wealth without foregoing influence over the firm,” said Michael Puleo, assistant professor of finance at Fairfield University’s Dolan School of Business in Connecticut. “But there’s an elevation of crash risk. If the share price falls low enough, he could get a margin call and that could be pretty costly.”

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Some of you may recall my posting about a Lyft driver running down my brother-in-law in a crosswalk. Unfortunately, Bob will never walk again and can only sit up for limited periods. He needs opioids several times a day now.

The lawyer we engaged says that Lyft claims their drivers are not on the clock unless there is an actual passenger in the car. Going to a pickup doesn't count. The driver is dirt poor and had Illinois minimum insurance $100,000 liability limit. Bob's bills are already over one million dollars in this greatest of all healthcare systems, so he has to be impoverished and become a public charge on Medicaid. Bob inherited 70% of his older sister's house, so that is lost too. A bad end for a loyal prole who served as a combat medic and after the Army "downsized" him out just short of a pension also served as a technician at the VA. A man who always paid his way and served his fellow vets becomes a public charge like a worthless bum with the state of Illinois taking his CSRS pension and SS.

Meanwhile Lyft executives are making how much running their unregulated taxi company?

EDIT: Bob often says he wishes the car had killed him. Between his pain and the financial disaster, he is objectively correct. A bad situation for a man that everyone loved. The waitresses at his favorite restaurant cried when they learned. "That dear sweet man" was one comment.

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@The Voice In the Wilderness A similar thing happens often in worker's compensation cases -- such as a personal detour while on the way to a job. It depends on how big the detour is and sometimes on whether the personal matter has been taken care of already. But usually the employee driver is considered to be on the job for most detours. Also sometimes on the way to work can be considered to be on the job as well, especially when there is no set place to be when work starts, as is often the case in businesses like construction.

Going to pick up a person for your employer sounds like the driver would be on the job because he is doing something on the employer's behalf. And that is really the critical test. Are you doing something that is beneficial to your employer?

Of course Lyft wants to claim all of their employees are independent contractors. Fed Ex has even done the same with many of its drivers. But most courts are taking a dim view of this because ultimately these drivers do not really have the ability to run an independent business. And even if they get other work from another contractor, it is generally not driving a vehicle for income.

In a liberal state like Illinois, your brother in law should have a better chance of winning than in a conservative state.

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snoopydawg's picture

get health care is what is wrong with Medicaid and other social programs in this f'cking country!

Bob inherited 70% of his older sister's house, so that is lost too.

Some programs kick you off if you get just a tiny bit ahead which is a way to keep people in poverty.

On the topic of this essay I wish I understood why the bank is willing to lose that much money or why it keeps investing I uber and we work, etc? What do they get out of it?
But it is also what's wrong with the gig economy since the companies don't have to pay for so many things that other companies do. No SS, FICA..taxes and no health care benefits or workers compensation or vacation and sick time, but the CEOs make huge bucks and uber just bought a $70 million house. How many drivers are just doing it to make extra money and how many are relying on government programs?

This country is way past being a banana republic don't you think?

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America is a pathetic nation; a fascist state fueled by the greed, malice, and stupidity of her own people.
- strife delivery

@snoopydawg

Some programs kick you off if you get just a tiny bit ahead which is a way to keep people in poverty.

The Medicaid limit used to be $3,000, not sure what it is now. We have to account for his money for the last five years. He didn't have a car or credit card. He withdrew most of his money in cash and paid for cash everywhere. Not too untypical for a man born in 1937 and who became an adult in the middle-50's. They have a deep suspicion of banks and an aversion to credit. Now how am I supposed to prove where than cash went?
I can account for all of my money. I track it in MsMoney 2000. Even my small cash expenditures, mostly tips, are annotated. But I'm a numbers freak. There aren't many like me.

They tell us we should buy long term care insurance for this. That would cost $1,400 a month each for my wife and I. That's my entire SS and pension.
Then some smart-ass (R) will say, "You should have bought insurance", instead of "companies with $5.7 billion capitalization should be responsible for their employees who are forced to drive while looking at an app on a smart phone."

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snoopydawg's picture

@The Voice In the Wilderness

I found this out when I got money from a source that didn't count as income. Doesn't matter... if you have $1,301 in your account then you have to pay back Medicaid. I'm still paying it back because if I don't the state will place a lien on my house. At least they decided that I didn't do it maliciously or I'd be kicked off or maybe in prison for it. Food stamps and SSI limits are $2,000. How they expect people to live on such low limits is beyond cruel. Want to save up for a car or any emergency expenses? Tuff!

Then some smart-ass (R) will say, "You should have boughtdone......

I just went round and round with some asswipe on twitler about this. I explained how people in dire poverty can't save for emergencies and other things because they are stretched to the max because their expenses keep going up while their income keeps going down. Health care. Rents. Food. You name it, but he just kept saying that if there is a will there is a way. I finally ignored him.

Socialism is great for the successful corporations right? Amazon is one of many companies that get subsidies and tax breaks, but don't pay taxes. And they pay such low wages that their employers qualify for government programs. Bernie wants them to help pay for their share, but he is alone on this. So instead of congress making them pay their fair share they want to cut the programs. Trump wants to do away with them altogether. But let's keep the tax breaks and subsidies going. Grrr!

Hope Bob is comfortable with the meds he is on and has a good doctor who will make sure he is. I'm sorry that he is dealing with everything he is.

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America is a pathetic nation; a fascist state fueled by the greed, malice, and stupidity of her own people.
- strife delivery

@snoopydawg

Maybe I shouldn't have brought personal problems here, but it is a good example of how, with no fault of their own, people who follow the rules are shafted for not being rich and unlicensed taxi services like Uber and Lyft can operate like Dickens' England.

Bob would like to go into a VA facility to be with his comrades, but they are full of Mideast casualties as I've mentioned before. I've thought of writing Tammy Duckworth who should commiserate with a veteran losing his ability to use his legs, but I really don't trust any elected official.

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Daenerys's picture

@snoopydawg He had a TBI from a car wreck back in 2008 and been in a nursing home ever since.

MN no longer asks about assets though--when my husband and I signed up for medicaid when we moved back here, it just asked for income. Not that it matters anyway since we own pretty much nothing other than his 17-year old car.

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This shit is bananas.

@Daenerys
Which wants your house, your life insurance, your furniture, your burial plot(!), but does allow a pre-paid funeral or cremation.

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