Uber co-founder Travis Kalanick has sold $700 million of his stock just recently, and this could have some consequences for the ride sharing company.
It’s certainly never a good sign when a founder engages in a major sell off of stock, but it also doesn’t always mean that something is wrong with the company itself. Here’s what you need to know.
Kalanick Sells $700 Million of his $2.5 Billion Share
First: Kalanick hasn’t sold the bulk of his Uber stock. He still has $1.8 billion of his Uber holdings. He did liquidate his stock, but not all of it. So, what does it mean when someone sells off stock? Since Kalanick is a founder and no longer Uber’s CEO (he was removed earlier), it can mean a few things.
Uber’s stock was locked until recently for early investors and insiders, and once it was unlocked a few people sold, leading to the stock itself suffering.
Analysts always fear that a founder is dropping their shares because they know something about the company. But that isn’t always true. Sometimes, people may dump their stock because of their own personal goals. In Kalanick’s case, he may be starting another endeavor, or funding an existing one. Since he is a founder but no longer CEO, he doesn’t necessarily have an obligation to keep stock.
But, it could also mean that he’s no longer confident about Uber’s path.
Uber Fined $649 Million in New Jersey
Uber is meeting quite a few of regulation issues which could spell doom for the disruptive technology. In New Jersey, the ride sharing service was recently fined $649 million for arguing that drivers weren’t employees. And that’s not the only place this has happened.
Many states (and even countries) have questioned whether Uber is really hiring employees rather than independent contractors. Independent contractors need to pay their own taxes, and don’t get employee-related benefits, but they also need to be able to work in a self-directed way, whenever they desire.
Uber has been using independent contractors, but it’s alleged that they’re treating them as employees: they’re controlling how they work, when they work, and how much they are allowed to charge.
As Uber (and Lyft) have become popular, they have run afoul of many employee-related regulations. And, if Uber was forced to hire contractors as employees, it’s unlikely that the model would be able to exist.
Uber Still Isn’t Making a Profit
A big problem for Uber is that it remains pre-profit. This isn’t unheard of for disruptive technologies, but Uber also doesn’t have a real path towards profitability. Originally, it was assumed that Uber would be able to transition to autonomous vehicles, so it wouldn’t need to pay drivers at all. But the legalization of autonomous vehicles is slow, and Uber hasn’t been able to develop its own self-driving cars.
There are ways that Uber could potentially make a profit, but it would involve things like charging a monthly fee. And because drivers are increasingly demanding more (but getting paid progressively less), the current model is inherently unstable. Either prices are going to need to rise to pre-Uber, Taxi-levels, or Uber is going to need to consider changing up its business model.
Many people have lost their long-term faith in both Uber and Lyft, for a number of reasons. First, because Uber is unable to secure profit, it’s in a dangerous place. Second, because Uber is now the target of new regulations and restrictions, its future is uncertain. And finally, because Uber has historically had a complex and toxic company culture, it’s become the target of a lot of criticism and legal issues.
Uber took a hard hit from the sell off, and that does mean that people who believe in Uber may be able to get the stock a little cheaper than they would otherwise be able to. But the enthusiasm of Uber is now waning, so most investors should stay away from the stock unless they have their own reason to believe that the business model is going to be able to rise.