How to Invest in Turo Pre-IPO

Is Turo finally ready to pull out of parking? The car-sharing service created in 2010 has teased investors for years now. It has repeatedly filed updated S-1 forms indicating it's ready to launch an initial public offering (IPO).

But a combination of factors -- including slowing growth, slumping tech stocks in 2022, and a dismal IPO market over the last two years -- have caused the San Francisco company, often compared to Airbnb (ABNB -1.17%) and Uber (UBER -1.0%), to hold off on going public.

Read on to learn more about Turo's prospects for becoming a publicly traded company, how to buy its stock when it goes public, its profitability, and whether you should invest in it when its IPO is finally launched.

What is it?

What is Turo?

The Turo ridesharing company has been stuck in park for more than two years now, waiting for the right moment to go public. The company filed its first S-1 form -- a prelude to announcing an IPO -- in January 2022. It reported $1.1 billion in host earnings and 161,000 active vehicles in 8,000 cities, with year-over-year guest ride growth of 114%. Turo estimated its total addressable market at $230 billion.

In its latest S-1, amended in March 2024, its figures rose to $3.8 billion in host earnings, with about 360,000 active vehicles in more than 14,000 cities. Its year-over-year guest rides grew only 18% and its total addressable market fell to $172 billion.

The concept behind Turo is similar to Airbnb or Uber, with car owners renting their vehicles to travelers. The business model means Turo has far less capital tied up in assets than traditional car rental companies and needs far fewer employees to operate the business.

The company, which began its life in 2009 as RelayRides, started in Boston and San Francisco before branching out to more locations in 2012. It rebranded as Turo in 2015 and has expanded its service into Canada (2016), the United Kingdom (2018), and France (2022). The company also secured permission to do business in its 50th state in 2022, when the New York Legislature approved peer-to-peer car-sharing operations.

When it filed its initial S-1, the company was narrowing its losses, even after losing almost $100 million in both 2019 and 2020. Things were looking up for Turo, with net losses of only $40.4 million in 2021. As it turned out, however, the IPO market vanished in 2022, with only 218 offerings worth $24.2 billion.

The company would amend its S-1 three more times in 2022 and five times in 2023. Given the current IPO environment, however, its latest filing with the Securities and Exchange Commission, made in early March 2024, may not be the last amended version before it nails down a date on the calendar for its IPO.

Publicly traded?

Is Turo publicly traded?

Turo is not publicly traded, although the company has notified the SEC that it plans to go public. Since its first filing in January 2022, it's amended its S-1 nine times, delaying an offering until the IPO market improves.

When will it IPO?

When will Turo IPO?

It's hard to say when Turo will announce an IPO. After a disastrous 2022, conditions for the IPO market improved only modestly, with valuations edging up to $26.2 billion but the number of offerings falling to 171. Even so, the number of offerings in early March 2024 was about 20% ahead of the previous year, so it’s possible that Turo may pull out of its parking spot later in the year.

How to buy

How to buy Turo stock

Since it's not publicly traded (yet), you can't buy Turo stock unless you're an accredited investor with a net worth exceeding $1 million or income above a certain level, either alone or with a spouse. There are some Turo-like stocks you can buy, though, including:

Avis Budget Group

Like most travel-related stocks, Avis (CAR 4.19%) stock plunged during the COVID-19 pandemic before rebounding as travel increased. Since 2019, its stock has risen nearly 237%, almost triple the S&P 500's return of 82% over the last five years.

The company reported record annual revenue of $12 billion in 2023, paid a special cash dividend of $10 per share, and wrapped up an $889 million stock repurchase. In early 2024, however, the car rental giant -- which boasts 10,250 locations in 180 countries -- ran into roadblocks.

Its stock crumbled as interest rates remained stubbornly high, creating larger payments for the Avis fleet and causing used car prices to fall as fewer consumers could afford newer models. Avis has cut costs, selling 50,000 of its cars in late 2023, but shares may struggle to recover as long as interest rates remain high.

Airbnb

The gripes about Airbnb are legion: homes that weren't described accurately, high cleaning fees, displacement of affordable housing … the list of complaints seems endless by almost everyone except investors. Shares in the home-sharing tech company rose more than 90% from January 2023 to early 2024, with revenue up 18% in 2023, free cash flow increasing 12%, and nights and experiences climbing 14%.

The company expected first-quarter revenue for 2024 to rise to at least $2.03 billion, a 12% year-over-year increase. And even as inflation curbs consumer spending, people continue to travel after two years of pent-up demand from COVID-19.

Uber

Uber, the original ride-sharing app, is expanding rapidly into delivery through its Uber Eats service. Investors are noticing the company's 200% run-up in share prices since the end of 2022 (and an 88% run-up to record highs since October) as delivery is driving earnings growth even higher.

Turo and Uber share some characteristics, with trips of less than 15 miles accounting for 47% of Turo miles driven. Uber, however, believes there's plenty of room for growth.

Even in its strongest markets, the number of people who take one monthly trip is less than 20% of the population, with most markets recording 10% or less. Uber also won kudos from investors by announcing its first share repurchase, a $7 billion plan amounting to 4% of the company's market capitalization.

Investors who want to buy one of these Turo alternatives can purchase shares with any brokerage account. Here's a step-by-step guide on how to invest in stocks like Turo.

Step 1: Open a brokerage account

You'll need a brokerage account to start investing. If you need to open one, here are some of the best-rated brokers and trading platforms. Take your time to research the brokers to find the best one to meet your needs.

Step 2: Figure out your budget

Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to decide how to allocate that money.

The Motley Fool recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years. You don't have to buy all those stocks at once. For example, if you have $1,000 available to start investing, you might want to begin by allocating that money equally across at least 10 stocks. You can then grow your portfolio from there as you have more money to invest.

Step 3: Do your research

It's essential to thoroughly research a company before buying its shares. You should learn about how it makes money, its competitors, its balance sheet, and other factors to make sure you have a solid grasp on whether the company can grow value for its shareholders over the long term.

Step 4: Place an order

Once you've opened and funded a brokerage account, set your investing budget, and researched the stock, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill out all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker (CAR for Avis, ABNB for Airbnb, and UBER for Uber).
• Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order since it guarantees you buy shares immediately at market price.

Once you complete the order page, click to submit your trade and become a shareholder in one of these Turo alternatives. If Turo ever does complete an IPO, you'd follow a similar process to buy its stock if it went public. Should shares become available, fill out the order page at your brokerage account with Turo's selected stock ticker and then submit your trade.

Profitability

Is Turo profitable?

Turo turned the corner on profitability in 2022, reporting net income of $154.7 million on revenues of $746.6 million. The company's income shrank to $15.6 million in 2023, even as revenue rose to $879.7 million, with expenses climbing almost 22% and growth slowing from the immediate post-pandemic boost.

Even so, the company appeared to show signs of increased growth in the fourth quarter of 2023, and it remains a valuable company with an estimated $500 million in total funding that has given it a $1.25 billion valuation.

Should I invest?

Should I invest in Turo?

Making investment choices is an intensely personal decision that depends on a number of factors, including your risk tolerance. Assuming Turo launches an IPO, you may want to consider buying the stock if:

• You think demand for travel -- especially longer trips -- will continue.
• You like Turo's business model, which requires little capital expense and relies on a contract workforce.
• You believe Turo will be able to avoid significant regulations or lawsuits that curb its revenue.
• You think the economy will remain strong, with inflation falling and consumers spending discretionary income.
• You believe no major competitors will emerge to challenge Turo's leading position in ridesharing.
• You'd like to balance your portfolio with a stock that combines the transportation and tech sectors.

When Turo launches an IPO, you may want to hold off on buying the stock if:

• You think inflation will continue to eat into discretionary income, reducing travel.
• Turo's slowing growth over the last couple of years has you doubting its staying power.
• You're worried about regulations that could hamper Turo's ability to operate in some markets.
• You think major rental car companies will continue to rebound from the COVID-19 pandemic.
• Your portfolio already contains transportation and tech stocks.
• You don't trust stocks that depend on a contract workforce.

ETF options

ETFs with exposure to Turo

Since Turo isn't publicly traded, there aren't any exchange-traded funds (ETFs) that can offer exposure to the car-sharing company. But if you believe transportation and tech stocks will prosper, there are several funds that can help you diversify your portfolio while minimizing your risk. Here are three ETFs that might fit the bill:

iShares US Transportation ETF (IYT -0.24%): If you’re looking for something a little more diversified than an index-tracking fund and want exposure to the transportation industry, consider the iShares US Transportation ETF. The fund, which has $1.23 billion in assets under management, is heavily focused on railroad stocks, which make up 31% of the fund.

The iShares ETF also has holdings that cover the trucking, air freight, and airline industries. Uber is the fund’s largest holding, making up 18% of the fund’s assets. The fund has an expense ratio of 0.41%.

SPDR® S&P 500® ETF Trust (SPY 0.41%): It’s unlikely that Turo will leap into the S&P 500 stock index when it launches its IPO. The SPDR fund, however, is a relatively safe investment that seeks to match the performance of its namesake fund while keeping a low expense ratio of 0.09%.

As tech stocks go, so goes the fund. It’s a weighted index, which means huge companies, like Microsoft (MSFT -1.24%), Apple (AAPL 3.1%), and Nvidia (NVDA 0.01%), are its largest holdings, making up almost 18% of its total holdings. The fund also has a number of Turo-adjacent stocks, including Airbnb, Uber, Ford (F -0.82%), General Motors (GM 0.52%), and Tesla (TSLA 15.8%).

SPDR S&P Transportation ETF (XTN 0.44%): Like the iShares fund, the SPDR ETF holds investments across the transportation industry. Although the largest share of its holdings is devoted to air freight and logistics, other top holdings in early 2024 included Uber, which made up 3% of its assets; Lyft (LYFT -0.28%), which accounted for 3.2%; and Avis, which made up 2.1%.

The fund, which tracks the S&P Transportation Select Industry Index, had $189.5 million in assets under management and 43 holdings through the first quarter of 2024. It reported an expense ratio of 0.35%.

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The bottom line on Turo

Turo should be doing extremely well, following in the peer-to-peer footsteps of runaway successes like Airbnb and Uber. To be sure, its profits haven't shifted into overdrive over the last few quarters, and its two-year delay in an IPO might not inspire a great deal of confidence.

Even so, Turo's business model is promising, especially given the increased demand for travel. The stock could eventually be a good buy for patient, buy-and-hold investors who believe in its potential and are willing to go along for the ride.

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