Uber IPO: What you need to know

By Justin Ware. Published at May 10, 2019, in Ctrl Alt Del

Today is the day.

After much anticipation, Uber will debut on the New York Stock Exchange under the ticker ‘UBER’.

The listing is Dara Khosrowshahi’s crowning moment, whose mandate was to expedite go public plans upon joining the company as CEO in 2017.

Despite being oversubscribed, Uber has set its listing price at US$45 per share, which falls in the lower end of its stated range. At these numbers, the tech giant has an implied market valuation of around US$82 billion (fully diluted) – well short of its target valuation.

The company’s conservative approach is likely due to the performance of rival Lyft, which has endured a beating on the NYSE after reporting a $US1.1 billion loss for the quarter.

Having opened at US$72, Lyft closed at a record low of US$52.91 Wednesday night, a loss of almost 11%.

Morgan Stanley was the lead underwriter for the IPO, along with Goldman Sachs and Bank of America.

Uber will offer 180 million shares of its common stock at market open, which means it could raise a further US$8.1 billion on Friday.

While the listing is likely to be the largest tech IPO since 2014 (since Alibaba Group’s US$25 billion IPO), the ride-hailing pioneer is likely to be disappointed. Uber made no secret of its pursuit of a valuation in the US$120 billion range at around US$50 per share.

Unfortunately for Uber, it’s never turned a profit and it shows no sign of rectifying that soon. It lost $US3.04 billion last year alone, despite exceeding US$11 billion in revenue. In fact, according to filings, Uber has now lost over US$10 billion in the past three years.

Despite its reduced listing price, many remain unimpressed. Among those is Brian Hamilton, who is the founder of Sageworks.

Founded in 1998, Sageworks remains one of the most prominent risk analysis firms in the US.

“Uber is basically Lyft 2.0,” Hamilton said recently.

“Good model, growing sales. But, yet again, here comes California math once more. It is still losing a tonne of money.

“If you buy, you are buying a bull market, not a company.”

Leading tech investor Gene Munster is also sceptical, pointing to the disparity between Uber and Lyft’s valuations as a major concern.

“I was surprised at the pricing. The pricing at US$83-84 billion is going to be about 40% higher on revenue multiple versus where Lyft is trading on their 2020 numbers.

“I understand that there is some optionality value that might account for some of that 40% difference, but this seems to me just simply too wide of a gap.

“I’d recommend investors not play the IPO,” he urged.

How Uber fares in the long run remains to be seen, but there’s reason to be optimistic. Khosrowshahi has already made a concerted effort to reframe the organisation – arguing that Uber’s future is not in ride-hailing, but as an industry leader in logistics and wider transportation advancement.

In the short term, how Uber stacks up against Lyft on the open market will be of intense interest.

Let the race to profitability begin.

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