Travis Kalanick has drawn a line. The co-founder and former CEO of About (WKN: A2PHHG) sold Uber shares in November and December – all of them. He made a gross profit of almost 2.8 billion UISD. Kalanick also ended his relationship with the company by resigning from Uber’s board of directors.
When someone high-ranking in a company buys or sells his own shares is called insider trading. Insider trading, especially insider sales, can be a sign for investors that the company is not running smoothly and that it is time to get rid of the shares as well. So: Should investors sell Uber shares now that Kalanick is leaving?
Kalanick, the serial entrepreneur
Insider trading has negative connotations for many investors, but not every insider trading is the same. Company insiders often have other motives for their decision.
Kalanick had a large stake in the company early on. The SEC filings show that he directly owned over 75 million shares in November and held an additional 22.6 million indirectly through a Charitable Remainder Unitrust (CRUT). He sold his stake via the Rule 10b5-1 plan, a SEC regulation that allows insiders to sell shares while following the rules of insider law.
Uber was not Kalanick’s first company. He was on board in 1997 as a co-founder of a company called Scour, which eventually went bankrupt. In 2001 he joined a company called Red Swoosh, which was eventually sold by Akamai Technologies for $ 15 million in cash.
As for Uber, keep in mind that he was rudely pushed out of his role as CEO in 2017. He stayed on the board, but for a real entrepreneur that is only semi-stimulating. So Kalanick cut the connection to Uber and closed his share position, not necessarily because he lost confidence in Uber, but because he needed the means to implement new ideas.
Among other things, Kalanick invests in a start-up called CloudKitchens. You can think of this as the Airbnb for restaurants, perhaps also as a WeWork for chefs. CloudKitchens will provide the restaurants with shared kitchen space to prepare the food for delivery only. Sounds strange? The skeptics also thought about Uber ten years ago.
Why investors this Should ignore situation
It is true that Travis Kalanick no longer has anything to do with Uber, but that is largely irrelevant to investors. A CEO shakeup is important at first, but the new CEO Dara Khosrowshahi has been running the company for over two years. Uber’s basic business prospects remain unchanged despite the news about Kalanick. The company remains the largest ride-hailing service in the world, generating over 14 million trips a day while spending a lot of money on newer and speculative opportunities.
Such a bet is called Uber Elevate – a futuristic company for autonomous carpooling in the air. Basically, Uber has created an electric helicopter taxi that is hoped to carry passengers in 2023. It’s still a long way off, but it sounds crazy enough to work. And bets like this are a major drag on Uber’s balance sheet. This future business segment posted a loss of $ 124 million in the third quarter alone, up from $ 369 million in the year to date.
The company divides its sales into five different segments, which are all unprofitable except for the more mature segment “Rides”. However, all Uber results (including rides) are marked with an asterisk. Profitability is reported on an adjusted EBITDA basis – and EBITDA is primarily an adjusted profitability measure. Using generally accepted accounting principles (GAAP) and taking out other information, Uber recorded a loss of nearly $ 1.2 billion in third quarter sales of $ 3.8 billion.
But you should be impressed by what Uber has built. In just ten years, the company has created a globally represented company with its ride sharing service. And now you also occupy meaningful, adjacent areas such as food delivery, last mile delivery and the air taxis already mentioned. These are the big business visions from which a stock can develop that beats the market.
One last thought
That doesn’t mean you should buy Uber shares now. The point is that Kalanick’s final move from Uber is not essential to investors. However, high spending on any growth stock like Uber is a concern, despite the good growth prospects. As previously mentioned, the company is unprofitable and has accumulated $ 2.5 billion in negative operating cash flow to date.
For those who are not yet sure whether Uber is a good investment for them, it is advisable to wait. Management has set a profitability target for 2021 as a whole, but has not yet given any details. In any case, you should keep an eye on that. Should the balance sheets improve, this could be a signal that the plan is working.
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The Motley Fool recommends Uber Technologies stocks. Jon Quast does not own any of the stocks listed.
This article appeared on 12/27/19 on Fool.com and was translated for our German readers.
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