What's going on?
According to reports on Tuesday, ride-hailing and food delivery extraordinaire Uber’s going XL, looking to sell $1.5 billion-worth of bonds.
What does this mean?
Uber, which is in 785 cities worldwide but yet to turn a profit, may reportedly issue new bonds that’ll give investors a return on their cash of around 8% a year. It’ll be doing something similar to Tesla, which recharged with nearly $2 billion of bonds last year. Tesla’s bonds are considered “junk” – i.e. rating agencies think they’re probably too risky for most investors (as opposed to “investment grade”).
Investors seem hungry for a piece of loss-making companies. Along with Uber and Tesla (which has only made a profit in two quarters over the last ten years), Carvana (sort of an online car dealership) and WeWork (which deals in shared workspaces) both recently raised money from investors despite burning through cash. And loss-making stocks have been all the rage this year.
Why should I care?
For markets: Is Uber cashing in its chips?
This isn’t Uber’s first drive around the borrowing block – it sold $1.5 billion-worth of debt in March – and the company’s plan to “go public” next year is likely to net it yet more cash. Uber’s been in talks with some of its rivals – Middle Eastern ride-hailing company Careem and British food delivery service Deliveroo. Combining forces would see Uber spend less on competitive marketing (because it’d own the competition, too) and get closer to making a profit.
The bigger picture: Tread carefully, Uber.
Just like for you, fair Finimizer, more debt for companies means more payments. If sales fall (due to competition or new regulation, for example), Uber’s still on the hook for those payments – and, eventually, the amount in full. Unlike staff or marketing (i.e. things that can be scaled back if necessary), interest bills will keep coming regardless. And if Uber can’t pay them, its bondholders might be able to take over the company and sell it off for parts to get their money back.