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May 16, 2019

DealBook Briefing | How Uber Bombed.

13-17 minutes

Uber executives ringing in the company’s first trade at the New York Stock Exchange last week.CreditRichard Drew/Associated Press
Uber executives ringing in the company’s first trade at the New York Stock Exchange last week.CreditCreditRichard Drew/Associated Press
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The story of Uber’s disappointing I.P.O. — its fall from a potential $120 billion blockbuster to a much-smaller debut that fell even further — is one of mismanaged expectations with plenty of blame to go around, Mike Isaac, Michael de la Merced and Andrew report in the NYT.
Trouble began with overambitious valuations. Bankers from Morgan Stanley said last fall that the company could be worth around $120 billion. That number quickly leaked, setting expectations of an I.P.O. that would gush wealth.
The $120 billion figure was important for Dara Khosrowshahi, who became Uber’s C.E.O. in 2017. His contract says that if the company is valued in the public market at $120 billion or more for at least three months in the next five years, he will receive a payout of $80 million to $100 million.
But Uber’s business has been suffering. Its once-meteoric growth rate slowed, particularly after SoftBank, which went on to invest in Uber, and Didi Chuxing, a Chinese ride-hailing frenemy, invested in the company’s Latin American rivals.
Investors resisted the lofty valuation, because of the company’s slowing growth, the struggles of its rival Lyft on the markets, and because many already owned shares in Uber. Buying in the I.P.O. meant adding to their holdings — a tough sell, especially at a high price.
Some board members felt they weren’t fully briefed on how Uber executives planned to pitch the company to investors on the I.P.O. roadshow. Only the board’s pricing committee, which included Mr. Khosrowshahi, focused on the offering.
And Uber’s valuation steadily drifted downward. Its I.P.O. was priced at $45 — but demand from investors still wasn’t there. As of yesterday’s close, the company’s shares were at $39.96.
We’re in a state of national emergency, and it’s all about your smartphone. President Trump used that argument yesterday in a move to keep any hardware that threatens national security out of U.S. wireless networks, Cecilia Kang and David E. Sanger of the NYT write.
• Mr. Trump issued an executive order that will ban American telecommunications companies from installing foreign-made equipment that could pose a threat to national security.
• “Mr. Trump declared the threat posed by foreign adversaries on American telecommunications networks a national emergency under a law used to impose sanctions against nations like Iran and Russia.”
• The order did not single out any nation or company, and White House officials called it “agnostic.”
• But the Commerce Department separately placed Huawei and its dozens of affiliates on a list of firms deemed a risk to national security, and will prevent them from buying American parts and technologies without seeking U.S. government approval.
The Trump administration has criticized Huawei for months, arguing that it and other Chinese companies could spy on or shut down U.S. communications on behalf of their government if their hardware is used in next-generation 5G wireless networks. Huawei has denied such accusations.
The order “left many questions unanswered,” Ms. Kang and Mr. Sanger write, “including how the department will define foreign adversaries and establish criteria to ban companies from selling equipment to the United States.” It’s also unclear how rural carriers will cope, because they need the kind of cheap hardware that Huawei provides.
And it will escalate tensions with China amid a continuing trade war, in which the two nations have been imposing hundreds of billions of dollars of tariffs on each other’s exports.
Treasury Secretary Steven MnuchinCreditAnna Moneymaker/Getty Images
Treasury Secretary Steven MnuchinCreditAnna Moneymaker/Getty Images
The White House has delayed for six months a decision about whether to impose levies on foreign cars and car parts, Ana Swanson and Alan Rappeport of the NYT report, citing unnamed sources.
• “Such a move would have taken aim at Japan and Europe, big auto manufacturers, and likely disrupted trade talks that the Trump administration had just begun.”
• “The decision reflects the administration’s reassessment of pieces of its tariff strategy with allies around the world as it focuses on an all-encompassing trade war with China.”
• ”Treasury Secretary Steven Mnuchin also said that the United States was closing in on an agreement with Mexico and Canada to roll back tariffs on steel and aluminum, which were imposed last year.”
This balancing act shows how tough it is to fight trade wars on multiple fronts. “Lawmakers and businesses are putting more pressure on the White House to concentrate their efforts on combating China’s unfair trade practices, while reversing far more unpopular tariffs on allies like Europe, Canada and Mexico,” Ms. Swanson and Mr. Rappeport write.
But the threat of auto tariffs remains. “The president will make the final decision on whether to impose tariffs of up to 25 percent on foreign cars,” Ms. Swanson and Mr. Rappeport write, adding that “Mr. Trump has long been a devotee of tariffs, viewing them as an effective way to rebalance trading relationships.”
More: The Trump administration could make as much as $20 billion available to U.S. farmers to help protect them from the trade war. And how the escalating feud between the U.S. and China is threatening the global economy.
A state agency concluded yesterday that PG&E’s electrical transmission wires caused last year’s wildfire, the deadliest in California history, Peter Eavis and Ivan Penn of the NYT write.
PG&E had already admitted that it was probably responsible for the fire, which killed 85 people and destroyed nearly 19,000 homes. The utility had filed for bankruptcy protection after it estimated that it faced $30 billion in wildfire liabilities.
The report confirmed victims’ suspicions. “Now the day of reckoning has come,” Frank Pitre, a lawyer for victims, told the NYT. “If PG&E wants to do the honorable thing, they should stop spending tens of millions of dollars in bankruptcy court and begin putting together the plan to compensate the victims.”
State lawmakers said PG&E needed tighter oversight. “It will be a heavy price to pay if they do not change their way of doing business,” State Senator Jerry Hill, a Democrat who represents San Francisco, said.
Daniel Elwell, the acting head of the F.A.A.CreditAmr Alfiky for The New York Times
Daniel Elwell, the acting head of the F.A.A.CreditAmr Alfiky for The New York Times
The Federal Aviation Administration’s acting head, Daniel Elwell, told a House panel yesterday that the regulator’s aircraft certification process was “a good system,” despite two fatal crashes involving Boeing’s 737 Max 8 that appear tied to the plane’s anti-stall software.
Mr. Elwell conceded that the 737 Max suffered a critical safety issue with its anti-stall software. That raises new questions about whether Boeing employees should have been allowed to inspect it themselves during the certification process.
And he said the F.A.A. was reviewing its practice of letting plane makers help to certify aircraft, which critics said was too lax a system. But he added that he supported delegating “certain tasks and certain decisions” to those companies.
Lawmakers were irate. “How can we have a single point of failure on a modern aircraft?” asked Representative Peter A. DeFazio, the Democratic chairman of the House Transportation Committee. “How was that certified? We shouldn’t have to be here today.”
Mr. Elwell gave no timetable for when Boeing would release a fix for the anti-stall software, beyond saying that the F.A.A. would clear the solution after consulting with government aviation experts. (Southwest Airlines’ C.E.O. says he’s “hopeful” that the plane will return this summer.)
More: The WSJ looks at the parallels between the two 737 Max 8 crashes. And China’s three biggest airlines are reportedly considering teaming up to jointly demand compensation from Boeing.
Yesterday, more than a dozen countries, including Britain, France and Germany, signed on to a nine-point plan with big tech companies like Facebook, Google, Microsoft and Twitter to address extremist and violent content. There was one notable absence, writes Adam Satariano of the NYT: the U.S.
• The Trump administration said yesterday that it would not sign the so-called Christchurch Call, a nonbinding but symbolic agreement inspired by the recent terrorist attack in that New Zealand city.
• The administration cited free-speech protections, saying that “the best tool to defeat terrorist speech is productive speech.”
America’s absence from the Christchurch accord highlights “a broader divide between the United States and other countries over government’s role in determining what content is acceptable online,” Mr. Satariano writes.
It “indicates a shocking lack of concern about the tremendous harms perpetuated by the internet, including terrorism and killing,” Dipayan Ghosh, who worked on privacy policy issues at Facebook and in President Barack Obama’s administration, told the NYT. “Further, our lack of participation will reinforce the intellectual divide between Americans and the rest of the world.”
But the White House did unveil a new bias reporting tool yesterday that will enable people to report censorship believed to be a result of political bias on Facebook, YouTube, Instagram and Twitter to the government. This call to crack down on censorship suggests that free speech may be a larger priority than policing troubling content for the administration.
Companies across America are increasingly talking about their “net promoter scores” — which tracks customer satisfaction — and using it as an important business yardstick. But that may be a bad idea, Khadeeja Safdar and Inti Pacheco of the WSJ report.
• The NPS is calculated from a single question: “On a scale of 0 to 10, how likely are you to recommend the company’s product or service to a friend?”
• Companies increasingly use the scores to make big decisions: Best Buy relies on them to determine employee bonuses; Target cites them to justify investments.
• “Last year, ‘net promoter’ or ‘NPS’ was cited more than 150 times in earnings conference calls by 50 S&P 500 companies,” according to a WSJ analysis of transcripts.
• But experts say there’s no proof that the net promoter score is a reliable metric. “The science behind NPS is bad,” Timothy Keiningham, a marketing professor at St. John’s University, told the WSJ.
• Even the score’s inventor, Fred Reichheld, thinks companies shouldn’t use it to gauge business performance. “That’s completely bogus,” he told the WSJ.
Dave Arnold is stepping down as Tesla’s senior director of global communications.
Two of uBiome’s three independent directors, Witt Wisebram and Joseph DeRisi, have resigned from the start-up after it was raided by the F.B.I., reportedly over its billing practices.
• Nestlé has begun exclusive talks to sell its skin care business to EQT and the Abu Dhabi Investment Authority for about $10.2 billion. (FT)
• Berkshire Hathaway announced that it holds an $860.6 million stake in Amazon. (Bloomberg)
• Gannett is reportedly poised to fend off Digital First in a proxy contest at the news publisher and retain control of its board. (WSJ)
• T. Rowe Price has sold off most of its stake in Tesla. (WSJ)
• American Express agreed to buy Resy, a restaurant booking service. (NYT)
Politics and policy
• The Trump administration reportedly plans to force insurers to publish the negotiated rates they pay for medical services. (WSJ)
• President Trump pardoned Conrad Black, the onetime media mogul and political ally who was found guilty of fraud and obstruction of justice in 2007. (NYT)
• Howard Schultz has reportedly delayed a decision on whether to formally run for the Democratic presidential nomination in 2020 now that Joe Biden has entered the race. (Fox Business)
• Mayor Bill de Blasio of New York City is officially running for president. (Axios)
• Britain’s opposition Labour Party warned that it won’t back Prime Minister Theresa May’s Brexit deal unless she offers more concessions. (FT)
• The F.C.C. will empower mobile phone carriers to automatically block robocalls. (NYT)
• San Francisco banned its agencies from using facial recognition technology. Many other cities could follow. (NYT)
• WeWork keeps losing money ahead of its I.P.O. — $264 million in the first three months of 2019, to be precise. (NYT)
• Microsoft announced that a now-patched bug in its Windows operating system could still be used as part of a potent cyberweapon. (WSJ)
• The electric air taxi start-up Lilium completed the first test flights of its new five-seater aircraft. Take a look. (Verge)
Best of the rest
• At CBS’s upfront TV presentation, the elephant in the room was its former C.E.O., Les Moonves. Also: A possible merger with Viacom appears to be back in play. (NYT)
• The Metropolitan Museum of Art said it would stop accepting gifts from members of the Sackler family linked to the maker of OxyContin. (NYT)
• Harvey Weinstein’s former movie studio plans to liquidate itself in bankruptcy. (NYT)
• Do companies fear the law? Apparently not. (DealBook)

Source: NYT

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