Uber's IPO launch: Why investor greed means it will sink
9 min read
29 April 2019
Uber's IPO valuation has dropped from it's initial $100bn goal. Why? Furthermore, can SMEs learn anything from their mistakes?
People tend to say that ‘timing is everything’. But when it comes to cab hailing behemoth, Uber, the above saying carries even more weight ahead of its initial public offering, (IPO), next month. So, Uber is going ‘public’, where the likes of you and I can finally have a ‘stock’ in the company. But the question is, do we want it?
Will Uber be the next Amazon?
Once, the idea of Uber, a truly innovative digital brand, going public, would have once prompted visions of Amazon-level greatness among stakeholders. After all, pretty much every single city dweller that owns a smartphone also has an Uber app, either for food deliveries or car rides, – or both. The Uber machine was also initially confident about their value to the public market, seeking an IPO valuation of $100bn, however, they have reduced this value recently, which is making us all think, – is Uber that much of a great bet anymore?
Uber’s valuation oscillation: The numbers
- Uber could be valued as high as $120bn
- Uber’s market cap would be $73.7bn at the lower end of its range
- Uber’s last private valuation was around $76bn
- IPO to be priced in a range of $44 to $50 per share
- Reported a loss from operations in 2018 of $3bn
- Uber’s first-quarter 2019 financials reports $3bn revenue
- They also reported a net loss of around $1bn
Uber is great for customers, but is it good for investors?
It seems that Uber is a great business for consumers, where we can access rock-bottom taxi transportation fares, but does it make for a profitable company for investors at the top of the pyramid?
“After nine years, Uber isn’t within hailing distance of making money and continues to bleed more red ink than any start-up in history. By contrast, Facebook and Amazon were solidly cash-flow positive by their fifth year. – Yves Smith, The Intelligencer , December, 2018
Couple this with underpaid drivers, and their costly overheads for running their vehicles, as well as their contractual disagreements with the company at large, it doesn’t really paint a picture of Uber as a solid business for big-time investors, does it?
Digital taxi apps are new to the trading floor
Another issue is that the ride-hailing companies are completely new to the public trading market. This makes the likes of Lyft and Uber market forerunners, but it also means they run the risk of failing in this sphere as they knock down the door for other competitors to follow and possibly learn from their initial mistakes.
The future of mobility isn’t here yet
Part of Uber’s justification for going public includes its aim to get into the shared-mobility space in a big way. So, by sinking big money into Uber as it goes public, investors are also banking on the fact that mobility culture will shift to the use of shared car ownership overnight.
Whilst this is a topic that’s discussed widely due to issues surrounding urban communities and the environment, there’s a risk that the market flotation of companies like Uber comes a little too early before this cultural change truly takes hold.
Is Uber in shape for Wall Street?
Is Uber prepared for the ecosystem they’re about to enter?
Wall Street, after all, is an unforgiving landscape which is defined by a risk-averse and financial performance driven mentality. In short, is Uber robust enough and ready for the ride? Considering the multitude of lawsuits and brand-damaging events it has experienced over the past two years, maybe it isn’t such a safe bet for investors, but more on that later.
The IPO in a nutshell
D-Day for Uber will be May 10, where they will ring the bell on the New York Stock Exchange floor and start trading.
This week, Uber representatives will seek to raise around $9 billion in cash and tender 180 million shares in order to reach their IPO goal. They have also stated that it expects its IPO to be priced in a range of $44 to $50 per share.
Will Uber suffer from a ‘failure to launch’?
We can’t talk about the upcoming Uber IPO without mentioning the digital cab firm’s main competitor, Lyft.
Uber will launch its IPO just over a month after Lyft’s, where the competitor’s shares dropped significantly in the weeks since its March IPO launch, stock is down by 20% from its initial pricing and by 35% since its opening trade,(it now has a current market cap of around $16bn).
– Some speculate that its disappointing performance on the stock market has made Uber more cautious of its initial lofty predictions, and the company’s recent actions show this to be true, (Uber has officially updated its S-1 filing with the Securities and Exchange Commission, and now seeks a valuation of up to $90 billion which is significantly lower than the $100bn initially sought).
What does the IPO filing say about market confidence in Uber?
Uber’s current CEO, Dara Khosrowshahi, (who replaced Kalanick when he was ousted from the company in 2017), openly acknowledges the “mis-steps” made “along the way”, in the Uber journey. In the filing, he stipulates that Uber is now taking a “new path forward” and has “changed.”
But why would a company hoping to secure a multi-billion dollar IPO status openly admit to reputational shortfallings? Because, they are too well-publicised to hide, and they coincided with Kalanick’s period of tenure.
Khosrowshahi lists these factors in the filing, including workplace culture problems such as sexual assault, and a lack of legal compliance to make clear that Uber will be pursuing a new direction post IPO.
What SMEs can learn from Uber’s IPO
Whether you’re looking to take a company public, or simply grow it some more, the Uber example shows that you can’t necessarily rely on hype or being known as an industry innovator to get the growth, valuation or public respect and admiration you desire.
The Uber case shows how quickly market conditions can change, and the importance of being a nimble business.
It also shows that if you build a business off a concept, (no matter how innovative), that only serves the interests of customers over stakeholders, you’re never going to get the funding you desire. It’s a balancing act between the two, and you can’t have a successful business without catering to the needs of both parties.
At the most basic, yet important level, the Uber case shows that business super-stars can fall short of the promising expectations they were destined. But for you SME owners, at least your businesses are small enough so that you can get your houses in order before that can happen.