One of the most highly anticipated initial public offerings (IPO) in the last 7 years, Uber’s IPO opened on an underwhelming note. Uber Technologies Inc priced its IPO at a valuation of $82 Billion, which is at the low end of the range that was being targeted initially. This decision seems to have been taken in order to avoid the collapse suffered by its rival Lyft at the time of IPO. Uber had targeted a range of $44 – $50 per share and raised $8.1 Billion, which works out to roughly $45 per share, closer to the bottom of the range targeted.
Hailed as the year’s biggest IPO, it is understood that the valuation was affected by the recent turbulence in the financial markets, which have been fanned on by the ongoing trade dispute between China and USA. Apart from the market concerns, what also seems to have affected Uber’s IPO is the performance of rival ride-hailing platform Lyft, since its IPO. Launched in late March this year, Lyft has seen its value take a hit of about 23% in a matter of a month. A strong valuation was placed on Lyft at the time of IPO but it ended up taking a deep dive when it came to trading. Avoiding the same fate must have been the thinking behind Uber settling for a lower price even though the IPO was oversubscribed.
The valuation Uber has placed on its IPO is almost 33% less than the value its investment bankers had predicted last year. However, despite the low pricing, the valuation is still above the $76 Billion mark that it had been valued at recently in the private fundraising market. Another reason for the low valuation is that Uber wanted keep a place for big mutual funds, which generally put in offers for lower prices. Managing Partner at advisory firm Cohn Reznick, Alex Castelli said, “the success of the IPO offerings of Lyft and Uber will be judged based on their post-IPO performance and how they can sustain the growth, while ensuring that they move toward profitability and lowering their cash burn”. One big question that Uber does face at the moment is how it expects to be profitable and by when, given the fact that it lost $3 Billion from operations in 2018.
According to Brian Hamilton, tech entrepreneur and the founder of Sageworks, a data firm, if you were to buy shares of Uber, you would not be buying a company but a bull market instead. “Uber is basically Lyft 2.0. Good model, growing sales. But, yet again, here comes California math once more. It is still losing a ton of money,” he says.
While the valuation might not be as good as earlier expected by many, the IPO still marks a landmark for this ride-hailing company, which has grown and risen to the top of the world in its space in a matter of 10 years. Recently, chief executive Dara Khushrowshahi even argued that Uber’s future was not limited to being a ride-hailing platform, but as a wider technology platform that can help shape the future of logistics and transportation. With a grand vision in place and new, albeit conservative, IPO, the future seems bright for the company and its shareholders.
Uber begins trading on the New York Stock Exchange on 10th May, with the symbol – UBER.