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Could Uber's Brutal Backlash Derail an IPO This Year?

By Bradley Seth McNew - Feb 1, 2017 at 9:10AM

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Uber has been playing firefighter the last few days after a poorly timed tweet. How long will those effects last?

A cartoon of an Uber driver with various cars in the background

Image source: Uber.

Over the last few days, Uber has undergone a public pummeling. The hashtag "#DeleteUber" has been shared thousands of times on Twitter, including by some high-profile celebrities. App-store stats show rival Lyft's app downloads surging, and screenshots of users deleting the Uber app from their smartphones have filled news feeds.

All of this is in response to Uber continuing to operate Saturday evening, while the local taxi union was staging an hour-long protest of President Donald Trump's executive order affecting immigration, by not picking up passengers at New York's JFK airport. The real reaction came after the company sent a tweet out via its local (New York) account saying that surge pricing -- increased prices based on higher demand -- had been turned off, and people could use the service to and from JFK at normal rates.

Uber has apologized for the mistaken tweet. The company has previously explained that surge pricing is based on an automated algorithm that detects when demand is higher, so that if it reaches a certain threshold the pricing goes up, and when that demand dips back below that threshold, it goes back down. In an email, the company would not comment on whether the surge pricing was turned off manually or based on lower demand, or on exactly what time it was turned off. But what we do know is that the tweet was sent out at 7:36 p.m., more than 30 minutes after the one-hour taxi strike was meant to end.

Uber puts it in reverse

Regardless, much of the social-media pressure favored a switch to Uber's competitor Lyft (which, it should be noted, seems also to have been in uninterrupted operation that night). This was especially true after Lyft announced the following morning that it would make a $1 million donation, spread out over the next few years, to the American Civil Liberties Union (ACLU), which has been actively fighting Mr. Trump's executive orders in court.

Following the backlash, Uber publicly dedicated 24/7 legal support to any of its drivers who face immigration issues, and set aside a $3 million defense fund for drivers in need. The company has also said that it will compensate any drivers for lost earnings if they are stuck out of the country because of the executive order (the company says this affects a dozen or so drivers). CEO Travis Kalanick took to his own social media to make a public statement that included how he plans to speak on behalf of immigrants when meeting with Mr. Trump as part of the new Economic Advisory Council.

Could this derail a potential IPO this year?

Kudos to Lyft for a well-timed and opportunistic grab at Uber's misstep. According to App Annie, a mobile-app tracking service, Lyft app downloads outpaced Uber downloads for the first time ever. All of this comes at a moment when many market analysts have been wondering if Uber might list for an initial public offering this year. Could this poor publicity derail that?

Or remember when lululemon athletica (LULU 2.46%) was tied up in knots in 2013, after its founder and former CEO Chip Wilson said that its clothes just weren't meant for all body types? That was in response to leggings that were meant to be sheer, but were so thin that they were see-through. Wilson essentially blamed the wearers, saying that "some women's bodies just don't actually work." The ensuing PR headaches caused some serious backlash for Lululemon, but it has largely bounced back.Consider how much attention is paid to Starbucks (SBUX 3.87%) each holiday season, as the company changes up its cup designs with holiday themes. The most recent instances in November 2015 and 2016, when Starbucks revealed a simple red cup, led to calls to boycott Starbucks over its "war on Christmas." Within weeks or even days, the controversy was largely blown over, with seemingly little effect on the company's short- or long-term sales.

Uber is likely to do the same. The list of companies with PR nightmares that eventually blow over is long, but one thing is for sure -- news moves fast. The newest headline for Uber is already out: that it's partnering with Daimler (DMLR.Y 0.39%) to build out a fleet of autonomous cars that will operate under Uber's network.

This could be a big year for IPOs. After a paltry list of companies that went public in 2016, the long awaited Snap Inc. IPO now looks to be on its way. Other companies like Airbnb and Spotify are targets for hopeful investors. Kalanick has said before that he wants to wait as long as possible for Uber's IPO, anyway, to give the company more time to grow -- by many analysts' estimates, it's already worth upwards of $70 billion -- and this recent round of poor publicity might be a reason to wait a little longer, so consumers and markets have more time to forget it. Still, Uber's media troubles this week are likely to be old news soon, and there seems to be little chance that the backlash from this past weekend would derail a 2017 IPO, if that's what the company is already planning.

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Starbucks Corporation Stock Quote
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Daimler AG Stock Quote
Daimler AG
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