Uber Completes $8.1B Public Market Debut in Spite of Tumultuous Past

Xconomy San Francisco — 

[Updated 5/10/19, 5 pm ET. See below.] Ride-hailing giant Uber secured $8.1 billion in new capital late Thursday as it priced an initial public offering that set its market capitalization at $82.4 billion, according to calculations by The New York Times and other news outlets.

Uber announced late Thursday it will sell 180 million shares of common stock at $45 apiece when it completes the IPO. That price is near the lowest end of the range Uber set at $44 to $50 in the amended prospectus it filed on April 26.

Uber (NYSE: UBER) started trading on the New York Stock Exchange under the symbol UBER on Friday. Any hopes of a first-day “pop” for its stock price were quickly dashed: The company’s shares opened the day at $42 apiece and closed at $41.57—down 7.6 percent from the IPO price. [Updated with first-day trading information.—Eds.]

The initial pricing fell far short of the heady expectations last year for the ride-hailing pioneer. But Uber managed to reap the new billions in investor money despite having reported, in 2018, the largest loss ever recorded for any company to tap the public markets through an IPO, according to a research firm. Together with rival Lyft (NASDAQ: LYFT), Uber redefined transportation as a tech service, and spurred legacy companies from GM to Intel to realign their business models to help build out a new sector called “mobility.”

San Francisco-based Uber was last valued privately at $76 billion in August, when Toyota invested $500 million, according to Reuters. But as Uber prepared to file for an IPO late last year, investment bankers had envisioned a possible valuation of $120 billion by the time Uber eventually went public, Bloomberg reported.

Uber may have lowered its sights for a number of reasons. Doubts about the profitability of the ride-hailing business model were widespread among investment analysts even before both Uber and Lyft publicly laid out their detailed financial results this year—including deep losses—in SEC filings required for an initial public offering.

Then Lyft, which completed its IPO on April 2, watched its share price dwindle from its IPO price of $72 per share to less than $53 at the close of trading May 8. Lyft had reported a first quarter loss of more than $1.1 billion on May 7.

In its IPO prospectus, Uber reported revenue of $11.3 billion for the full year 2018, and a loss from operations of more than $3 billion. Asad Hussain, an analyst covering emerging tech at PitchBook, says investors focus on the adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of more than $1.8 billion to evaluate the company’s performance and prospects.

Uber’s “trailing adjusted EBITDA loss of $1.8 billion (is) more than any other IPO, ever,” according to Renaissance Capital. That record was previously held for a few weeks by Lyft, with a trailing EBITDA loss of $944 million, the IPO research and investment firm says.

The two ride-hailing companies, like many tech companies, have been prioritizing growth while tolerating losses, buoyed by investments from venture capital firms and other investors who agreed to ever-higher valuations. Uber and Lyft are now making the bumpy transition to Wall Street, where investors are wondering whether they can deliver on their promise.

“In general, investors are hesitant about companies on the forefront of new technology—untested, highly capital-intensive, and deeply unprofitable,” says PitchBook analyst Hussain.

Uber and Lyft are “untested” in the sense that they haven’t yet operated during an economic downturn, so investors can’t gauge their resiliency in hard times, Hussain says. Both companies also face the possibility of regulatory changes that could force them to classify their drivers as employees, rather than as contractors who don’t qualify for benefits such as health insurance. That would remove the advantage that allowed the ride-hailing startups to undercut taxi company fares and achieve rapid growth, he says.

Aside from pricing pressure from wary investors, Uber itself may have underpriced its share offering somewhat to leave room for a price bump in later trading that would reward its shareholders—a fairly common tactic, Hussain says. That strategic underpricing might also guard Uber’s share price from slipping underwater, as Lyft’s did, further shaking Wall Street’s confidence in ride-hailing.

“Optics matter, especially when you’re one of the first companies in a new industry,” Hussain says. “You want to have positive performance coming out of the gate.’’

Uber’s IPO moment

Drivers for both Uber and Lyft staged a global day of protest on May 8 against work conditions, including their contractor status and “poverty pay for drivers,’’ The New York Times reported. The stock markets were also roiling this week during a US standoff with China over tariffs, and as Democratic Party leaders declared that the Trump administration’s resistance to subpoenas from Congressional oversight committees had pitched the nation into a Constitutional crisis.

For all that, Uber had a relatively peaceful IPO week compared with the tumultuous state of affairs back in early 2017, when the company faced allegations of rampant sexual harassment; of chaotic management by a “frat boy” culture under co-founder and then-CEO Travis Kalanick; and lawsuits from drivers, as well as another from Waymo, the self-driving car unit of Google parent company Alphabet (NASDAQ: GOOGL), which accused Uber of stealing its intellectual property. The turmoil ended in a management purge, including Kalanick’s replacement as CEO by former Expedia (NASDAQ: EXPE) CEO Dara Khosrowshahi.

Khosrowshahi is slated to ring the opening bell at the New York Stock Exchange Friday rather than Kalanick, who will be confined to the trading floor, according to the Financial Times. But it shouldn’t be a depressing day for Kalanick, whose ownership stake in Uber is estimated to reach $5.7 billion at the company’s market debut, the newspaper reported.

Management teams at both Uber and Lyft will now be under pressure from shareholders to execute well, Hussain says.

For Uber, that means performing well on multiple fronts—pushing a global expansion of its ride-hailing network as well as growing its auxiliary services: food delivery unit Uber Eats, and its bike and scooter rental businesses. Uber faces competitors in each of those sectors. In addition, Uber Freight is taking on the freight shipping business, where its rivals include entrenched legacy brokerage companies as well as tech startups such as Convoy.

Uber’s international ambitions differentiate it from Lyft, whose ridership is concentrated in the United States and Canada. In those economies, Lyft is more likely to be able to raise rates without losing customers, says Hussain, who favors Lyft as an investment over Uber because Lyft is more focused on ride hailing as its central business mission.

Uber, on the other hand, has a chance to achieve profitability by trimming losses though operational efficiencies and economies of scale as it grows, Hussain says.

“Uber is really well-positioned to be that go-to platform for the next generation of commuters,’’ Hussain says.

However, he says, investors in the two ride-hailing companies have to take a long-term view because they can’t expect profits soon.

“You have to kind of see the light at the end of the tunnel,’’ Hussain says.

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