Uber and Zoetis

By Malcolm Berko

October 24, 2018 5 min read

Dear Mr. Berko: My stockbroker insists that Uber, which is valued at $120 billion, will come public in the second quarter of 2019. He doesn't have a price yet but promises he could get at least 100 shares at the initial public offering price. He says the stock could double on the first day and thinks I should buy more shares as the price runs up. He's extremely bullish. What do you think? Also, my sister, three of our cousins and I each inherited 227 shares of Zoetis. My broker wants me to sell all of mine. My sister's broker told her to round out her shares to 300. What's your opinion, please? — KC, Oklahoma City

Dear KC: Regarding your first question, he may be right, but I think he's wrong. Uber's ride-hailing service launched in San Francisco in 2011. During the past seven years, Uber, whose 600,000 drivers have given rides to over 70 million passengers, has managed to lose money year after year after year. Frankly, Uber may be unable to make money.

Uber won't publish financial results, but some Uber-watchers say the company lost nearly $5 billion in 2017, up from a $2.7 billion loss in 2016. Few companies have grown as quickly and lost so much money ($11 billion since 2011) in such a short time frame. Could Uber have developed Peter Pan syndrome — reaching a stage of maturity most companies never achieve and becoming deeply in debt and unable to make a profit?

I can't imagine, even in my most bizarre moments, how Wall Street decided that Uber is worth $120 billion. That amount is a "pump" amount to help Uber, which, as your broker says, may go public by mid-2019. A pump amount is an Arabic numeral with a dollar sign before it that fee-hungry investment bankers pull from their bums to encourage investors who are losing their enthusiasm. In this case, they may even raise it to $150 billion or $200 billion — even though Uber has publicly stated that it doesn't expect to be profitable for at least three years. Please tell me, in the name of all things good and wonderful, how an honest group of people could value a company that has only foreseeable losses at $120 billion. This sounds like an SEC- and FINRA-approved scam to keep new investors starry-eyed. Now investors will more enthusiastically buy Uber, permitting early investors — Microsoft, Fidelity, Miley Cyrus, Tiger Global Management, Britney Spears, TPG Growth, the Qatar Investment Authority et al., who invested billions with Uber — to get their money back at nuclear returns. Meanwhile, some Uber employees who won't wait for an initial public offering are selling their shares at $33, which is a monumental discount to Uber's cockamamie $120 billion valuation. They could be the smart ones; that $120 billion, all puffery and promise, is about what the Big Three automakers are worth, combined. After the IPO, shareholders may be as mad as a foaming camel with a bad case of piles, though it's also possible they'll be as happy as hogs on ice in the winter sunshine.

For 60 years, Zoetis was the animal health division of Pfizer. Then, in February 2013, Pfizer completed an unexciting IPO at $25 a share. But Zoetis (ZTS-$90) is a very exciting company. It develops, manufactures and commercializes animal health medications and vaccines for livestock and companion animals. For 2017, ZTS reported revenues of $5.3 billion and earned $3.05 a share. ZTS focuses its research and medications specifically on (livestock) cattle, swine, sheep, poultry and fish and on (companion animals) dogs, cats and horses. Livestock revenues are up 7 percent year over year, and companion animal revenues are up 17 percent. Livestock revenues from anti-infectives, vaccines, parasiticides, medicated feed additives and other pharmaceuticals accounted for 64 percent of ZTS' 2017 revenues. And about 50 percent of ZTS' revenues derive from overseas. In 2018, revenues should come in at $5.7 billion, with earnings of $3.12 a share. And impressive net profit margins, plus growing sales, suggest ZTS will have $6.1 billion in revenues and earnings of $4.10 by 2021. ZTS has a strong balance sheet, excellent management, a good sales team and highly respected products, and your sister's broker's right.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

Photo credit: at Pixabay

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