Lyft, Uber IPO Deals Flunk the Smell Test

Investors could be pardoned for wondering why IPO underwriters for Lyft and Uber have used accounting trickery that smells worse than ten-day-old fish in order to promote the deals. Is bogus too strong a word? Judge for yourself. In their prospectuses, neither firm subtracted promotional incentives and refunds from sales totals, as is customary. This allowed them to grossly overstate revenues and profits. In Lyft’s case, revenues would have been 16% lower than the $2.16 billion reported and Uber’s would have been 12% lower than the $11.27 billion reported. These numbers were aired in a Wall Street Journal op-ed piece Monday by Howard Schilit, co-author of Financial Shenanigans.

Passengers Don’t Count

What adds to the stench is that in order to use these accounting gimmicks, the ride-hailing companies had to categorize their drivers as customers. Passengers seem not to matter: “Because end-users access our platform for free and we have no performance obligation to [them], [they] are not our customers,” Uber’s SEC disclosure filing notes without a trace of irony.  This doublespeak would be laugh-aloud-funny if not for fact that similar chicanery is undoubtedly a key ingredient in keeping the ten-year-old bull market going.

Schilit exposes the accounting ruse for exactly what it is by asking this question: Who would Uber/Lyft consider the customer in a self-driving car? It’s a question that most of the bozos clamoring for Lyft shares, and Uber’s when it goes public, are evidently not taking too seriously.