UBER MARKDOWNS: The daily headlines of new drama at Uber slowed down in July, but that doesn’t mean the company is in recovery mode yet. Reports over the weekend painted an ugly picture of a leaky board struggling to hire a CEO, an ousted CEO who can’t stop meddling, and a rudderless company without a leader.
Inside the company, employees are speculating that Uber gets sold for a fraction of its valuation by the end of the year. Or maybe SoftBank will team up with Kalanick to buy back the company! It would be a nutty move, but certainly not SoftBank CEO Masayoshi Son’s craziest. (As for Kalanick’s plan to pull a “Steve Jobs” and return in a blaze of glory, let us not forget how that worked out for Mark Pincus and Jack Dorsey.)
In the meantime, Uber’s mutual fund investors have now decided the company is less valuable after all the drama. Fortune’s Jen Wieczner reports:
After T. Rowe Price wrote down the value of its Uber stock by 5% in May, other mutual funds slashed the valuation of their own stakes following Kalanick’s resignation in June, new disclosures show.
Vanguard, whose $7.5 billion U.S. Growth Fund owns shares in Uber, cut the value of its position by 15% in June, the first time the fund giant has marked down the taxi startup’s valuation in the three years it has owned it. The Hartford also lowered the value of its Uber stock by 15% in the three funds that hold it, as did the $2.8 billion Principal Global Multi-Strategy fund, which is overseen in part by Wellington Management.
It’s the first indication that Uber’s problems, from a sexual harassment scandal to an intellectual property lawsuit with Waymo, are taking a significant and widespread toll on its stock price. Uber, as a private company, does not have publicly-traded shares on the stock market, and therefore it’s up to the mutual funds’ discretion to assign a so-called fair market value to the stock.
Another Principal fund, the $7.5 billion Principal LargeCap Growth I fund managed by T. Rowe Price, marked down its Uber stake by about another 8%, a total reduction of more than 12% since April.
While the markdowns do not necessarily reflect the going price for Uber stock on the private market—and were not universal among funds that own Uber—the consistency among at least three different firms, cutting the value of their shares by exactly the same amount (to about $41 a share), points to a prevailing view among portfolio managers.
They come at a time when the only major changes at the company were Kalanick’s departure, and a stated commitment to improve the company’s culture and eliminate harassment (an announcement that’s unlikely to negatively impact Uber’s stock price). In determining the fair market value of private stock, Vanguard, for its part, takes into account “offering price, financial performance of the company, the performance of comparable companies and corporate actions,” a spokesperson says.
The reductions also represent sizable paper losses for the funds. Between the Hartford Capital Appreciation fund, which has $8.5 billion in assets under management, and the $4.5 billion Hartford Growth Opportunities Fund, Uber accounted for more than $30 million in losses in June alone, according to the new disclosures (released at the end of the following month). Vanguard, meanwhile, which has a smaller position in the car-hailing company, took a loss of more than $10 million.
Meanwhile BlackRock, which does not report its portfolio holdings each month, disclosed in a recent quarterly filing that it marked up the value of its Uber stock by more than 8% in the three months ended May 31, the second time this year it has raised its valuation on the company. By BlackRock’s estimation, that puts Uber’s stock price at nearly $57 a share, though it’s possible that the asset manager was merely accounting for the rise in the overall stock market during the same period. Read more here.
SNAP: The company’s share lockup for early investors expired yesterday and its stock ended the day down 1%. Employees won’t get to sell for another two weeks.
Meanwhile the S&P 500 announced it will exclude Snap from its index on account of its three-class share structure. This follows the FTSE Russell’s decision to do the same.
This means that even though Snap ignored investor complaints about its non-voting share structure, the indexes did not. Back in February the Council of Institutional Investors sent a letter to Snap urging the company to reconsider its share no-vote structure. I wrote at the time:
The kneejerk defense here is “Don’t like it? Don’t buy.” But because companies of Snap’s size will be included in major stock indexes, many investors won’t be able to avoid it.
It also begs the question of whether investors will ever be able to pick and choose which parts of index funds they want to own. (The S&P 500, minus Snap, for example.)
The indexes just made that judgment call on behalf of investors. It sends a powerful message to startups with supershares and board structures that give their founders total control. The only problem is it’s not exactly consistent: Facebook, which has three classes of shares, and Alphabet, which has two, remain on the index.
MEANWHILE: VC “confidence,” as measured by a survey by University of San Francisco professor Mark Cannice, remains steady at 3.83 on a scale of one to five. Cannice has done this survey for the past 52 quarters; 3.83 is steady with last quarter and slightly above the 13-year- average.
The notable thing that has happened is that the reasons behind the confidence shifted: Last year, VC’s were most concerned about macro issues like political uncertainty. In the first quarter, they shifted back to traditional venture worries like the rate of innovation, new market opportunities, and exit expectations.
This survey only covers the first quarter. I’m guessing that certain events – Uber meltdown, Snap IPO, sexual harassment scandals – will cause a second-quarter drop in VC confidence.
UNICORN WATCH: Reddit has raised $200 million in a new round of funding the values it at $1.8 billion (more details below). Who says there are no more investment opportunities in consumer Internet?
Reddit is a consumer Internet anomaly that never quite struggled, per se, but has existed in a Peter Pan Neverland for years. The site looks like a 90’s message board. Basic functions like search barely work. It gets 80% of its traffic from desktop visitors. It hosts some of the most vile content on the Internet, despite an “Anti-Evil” team of engineers working to weed out trolls. And while it has a modest advertising business, the company doesn’t put much effort into making money.
In an interview with Recode, CEO Steve Huffman said the company had a lot of “perception debt” which is an… interesting way of putting it.
Despite the “debt,” Reddit has 300 million monthly visitors. The company and its investors believe that with some simple product enhancements, it has a shot at getting to 1 billion.
One hitch: Those 300 million visitors know and love Reddit in all its confusing, ugly, difficult-to-use glory. They are vocal about that. And prone to outrage. The biggest challenge with any consumer Internet product is evolving to appeal to a larger audience while keeping your core users happy. (See also: Twitter.)
Reddit knows this better than anyone. In an AMA interview with Huffman, one user begged: “Please please please for the love of God don’t pull a Digg,” a reference to the time Reddit’s Web 2.0 rival Digg launched a redesign that was so unpopular it caused users to revolt. The site never really recovered from it. “Why not?” Huffman joked in response. “Digg4 was the best thing that ever happened to Reddit.“
MOOCH: Anthony Scaramucci will not…