The IPO of any private company comes as the resolution of a mystery, as closely held details about its financial performance and strategies are revealed. But the suspense is heightened in the case of San Francisco-based companies Uber and Lyft, which pioneered the huge ride-hailing industry but have yet to come close to turning a profit. Market observers may be awaiting their disclosures as eagerly as political junkies longing to learn the findings of Robert Mueller’s investigation of President Trump’s 2016 campaign.
Now, it seems, those three cliffhanger endings may arrive in the same time frame early next year, and the political news on the Mueller front may affect IPO prospects, if it adds to the market uncertainties surrounding an already-troubled U.S. administration.
Over the past week, Uber and its smaller rival Lyft have each filed confidential documents with the U.S. Securities and Exchange Commission (SEC), signaling their intent to go public in 2019. The Mueller investigation, which shows signs of heating up, may be one of the factors affecting the financial markets, which are already being riled by tariff wars, unraveling international alliances, and hints of an imminent recession.
The uncertainty around Uber and Lyft is: How will investors receive planned public offerings next year by two companies that have been burning through billions of dollars in outside money for years, without yet outlining a path to profitability?
The competing ride-hailing companies may set the tone for an IPO year when a number of other tech companies may try to make a public debut, including Slack, Airbnb, Instacart, and Palantir. Uber’s IPO in particular poses a fateful question for believers in Silicon Valley’s self-proclaimed unicorns—companies valued at more than $1 billion. Uber’s venture-firm backers and lenders have already poured $24.5 billion into the company, which has lost $11 billion since its founding in 2009. Will big institutional investors follow suit by snapping up shares in its public offering?
Uber’s revenue grew to $2.95 billion in the third quarter, though the rate of growth has been slowing, according to the company’s latest release of selected financial numbers in November. Its loss of $1.07 billion in the quarter ending on Sept. 30 was 20 percent greater than that in the prior quarter, Bloomberg reported. In 2017, the company lost $4.5 billion over the full year.
Uber’s private valuation was pegged at as much as $76 billion in August, but banks vying for the company’s business speculated that the company could complete an IPO at a valuation of $120 billion, the Wall Street Journal and Reuters reported.
If that happens, Uber would take the top spot as the richest IPO on record, ahead of China’s Alibaba Group Holding (NYSE: BABA), which raised $25 billion in its 2014 U.S. public offering.
Lyft, which has raised $4.91 billion since it was founded in 2012, is also operating in the red. Its investors have agreed on a valuation of $15.1 billion, according to Crunchbase.
Uber and Lyft will need to revise their SEC filings before they embark on their road shows to sell their IPOs to investors. Some of the general questions raised by market watchers—who would love to be a fly on the wall at those meetings—include:
—How will the ride-hailing companies reach profitability? Will they have to stop subsidizing ride fares with investor money, and risk losing business when prices rise?
—Will regulators and courts continue to allow the ride-hailing companies to classify drivers as independent contractors, rather than as employees who qualify for benefits such as unemployment insurance and workers’ compensation?
—Do the companies both still plan to field their own self-driving cars, or will they cede that ground to the many competitors—including big auto companies such as GM—that are also developing these technologies?
—Are any of their new business ventures, such as Uber’s food delivery initiative Uber Eats, likely to become significant revenue drivers?
—What are the market niches where Uber and Lyft can maintain significant control, at a time when scores of companies, inspired by their innovations, are competing to create the transportation models of the future?
Photo “Money!” by Flickr user Tracy O.