$UBER Deep Dive w/ Abdullah, Mostly Borrowed Ideas (Episode 44)

Episode Summary

Executive Summary: Abdullah Al-Razwan (“Mostly Borrowed Ideas”) discussed his background in finance and research, why he launched a paid deep-dive newsletter after losing U.S. work authorization, and his bearish thesis on Uber. He argued Uber’s TAM is overstated, its ride and Eats businesses face weak unit economics and heavy incentive dependence, and the stock embeds aggressive margin expansion expectations with limited margin of safety.

Main Topics: Background and investing philosophy (Priority: 4/5): Abdullah described growing up in Bangladesh, studying finance, working in equity research, and developing a flexible value-investing mindset focused on buying businesses below intrinsic worth rather than fitting into rigid style boxes. Launch of the paid newsletter (Priority: 4/5): He explained that immigration/work authorization issues forced him out of his job, prompting him to build a research website and charge $10/month for monthly deep-dives so he can work independently from anywhere. Why Uber was chosen for deep research (Priority: 5/5): He said Uber is a debated name with clear bull and bear cases, and his own experience as a user led him to investigate the business deeply, ultimately leaving him more bearish than bullish. TAM and market limitations (Priority: 5/5): He criticized Uber’s addressable market framing as overly broad and argued real demand is constrained by geography, use case, parking economics, airport access, and local regulations rather than the huge numbers in the S-1. Ride-hailing unit economics and network effects (Priority: 5/5): He broke down Uber Rides economics, emphasizing high variable costs, driver/customer incentives, deadhead miles, and local network effects that must be rebuilt market by market, limiting operating leverage. Uber Eats economics and execution challenges (Priority: 5/5): He outlined the delivery workflow, restaurant/driver/revenue splits, and why Uber Eats remains structurally difficult due to cumbersome fulfillment, negative margins, and consumer willingness to self-pickup when value weakens. Valuation, RSUs, and risks (Priority: 5/5): He backed into a required return and found Uber needs significant take-rate, gross margin, and sales-and-marketing improvement to justify the stock, while regulatory risks, competition, and autonomous vehicles remain major threats.

Key Arguments: Abdullah’s investing style is simple value investing: buy businesses when price is below true worth, without obsessing over labels like growth or value. The COVID drawdown reinforced that investors must imagine holding stocks through severe declines; conviction matters more than optimism during bull markets. The paid newsletter was created to preserve his research career after immigration constraints forced him out of his job; pricing at $10/month was meant to remain globally accessible. Uber’s TAM as defined by management is too expansive and not useful for investors because it overstates what is realistically addressable. Uber is most relevant in dense cities and airports, not as a universal transportation solution; demand is concentrated in a small number of geographies. Ride-hailing is expensive versus car ownership or public transit, making frequent use unattractive for many consumers outside higher-income segments. Uber’s growth depends on spending to develop local two-sided marketplaces, but those incentives are recurring, not one-time, and reduce the likelihood of strong operating leverage. Driver churn is high and incentives appear structurally necessary to keep supply on the platform. Uber Eats is operationally complex, margin-challenged, and prone to reversion-to-mean because convenience does not necessarily equal value. Uber’s current valuation assumes aggressive long-term improvements: higher take rates, much better gross margins, lower sales and marketing, and meaningful EBITDA expansion. A shareholder should care more about profitability and cash flow than gross bookings at this stage of Uber’s maturity. Key long-term risks include competition from local players, regulation of gig work, and a potential shift to autonomous vehicle platforms such as Waymo.

Data Points: Twitter followers: almost 17,000 - Size of Abdullah’s FinTwit audience discussed at the start of the interview Research output: one deep dive per month - His planned cadence for the paid newsletter Subscription price: $10 per month - Price point intended to keep research accessible globally Free trial period: until November 15 - Introductory access period mentioned for the newsletter Uber deep-dive readership: more than 11,000 views - Reach of his Uber piece after being widely shared Uber operating countries: 57 countries - Geographic footprint discussed in the TAM section Cities contributing 25% of gross bookings: 5 cities - New York, San Francisco, Los Angeles, São Paulo, and London Urban concentration: 25% of gross bookings from five cities - Illustrates Uber’s dependence on dense metropolitan markets U.S. Uber usage rate: 36% in 2018 - Share of Americans who used Uber at least once, per his cited data U.S. Uber usage rate: 15% in 2015 - Historical comparison showing adoption growth Penetration among ages 18–29: 50%–70%+ - Young users showed much higher adoption than the overall population Airport bookings share: 15% of total bookings - Trips to or from airports as a meaningful but vulnerable use case Airport parking revenue example: 27% of total airport revenue - Charlotte Airport’s parking revenue share used to show airports’ incentive to resist ride-hailing Deadhead miles: 40%–60% - Empty miles driven by ride-hailing drivers while searching for riders Car ownership cost in U.S.: 75 cents per mile - AAA estimate used to compare against Uber ride economics Public transit cost: 27 cents per mile - Cheaper alternative compared to Uber Uber ride cost: $1.6 per mile globally; close to $2 per mile in the U.S. - Used to argue frequent ride-hailing is economically unattractive Average U.S. earnings: roughly $50,000–$60,000 per year - Illustration of who can realistically use Uber frequently Driver revenue split: about 70% to the driver - Rough average of gross bookings paid to drivers Driver incentives: $100 for 30 trips over 3 days; $10 for 3 consecutive peak-hour trips; $100–$1,000 for referrals - Examples of incentive structures used to build supply Driver retention: only 4% of drivers continue after a year - Evidence of very high churn and ongoing recruitment needs Uber Eats restaurant share: about 75% of subtotal to restaurant - Approximate split mentioned for food delivery economics Uber Eats EBIT margin: negative 54% - Current-margin example cited for the Eats segment Adjusted EBITDA margin: minus 19.3% - Last year’s laxly defined company metric referenced in valuation discussion Required margin expansion: about 40 percentage points by 2030 - Implied shift needed to justify the stock under his assumptions Take-rate improvement: 500 bps over 10 years - Part of the assumptions needed to reach a 9.7% IRR Gross margin improvement: 1,000 bps over 10 years - Valuation assumption required for target IRR Sales and marketing reduction: nearly 1,200 bps of revenue - Assumed decline needed in marketing intensity Required shareholder IRR: 9.7% - Derived from Uber’s 2027 bond yield plus a risk premium Uber 2027 bond yield: 6.7% - Used as the base rate for expectations-based valuation Risk premium over bond yield: 300 bps - Added to senior unsecured bond yield to estimate equity return requirement Free cash flow multiple: 25x - Multiple still needed in his model even after ambitious operating improvements

Pivotal Quotes: "I do value investing in the more traditional sense. Like, you know, value, growth, these are primarily marketing terms." — Abdullah Al-Razwan: Explaining his investing philosophy as flexible and not box-driven "I strongly believe that Uber is a viable business. It definitely can exist. You can definitely make it work. But it's a question of size." — Abdullah Al-Razwan: Summarizing the core bearish thesis: viability is not the same as scale "You cannot borrow conviction, right?" — Abdullah Al-Razwan: Emphasizing that investors must do their own work rather than rely on others' ideas

Implications: Listeners should view Uber as a potentially durable business with unresolved economics, not a guaranteed platform winner. The episode highlights the importance of local network effects, realistic TAM analysis, and valuation discipline when assessing high-growth, narrative-driven companies.