This Friday's Uber (UBER -0.03%) initial public offering has got something for everyone.
A groundbreaking founder left out in the cold after a boardroom coup? Check.
A "Who's Who" of the world's billionaires set to get even richer? Check.
Thousands of drivers preparing to strike in protest of their not-quite employer? Check.
For ordinary investors, the IPO brings an opportunity to get a piece of the ride-sharing juggernaut for the first time. It's the biggest IPO for a U.S. company since Facebook's debut in 2012, and Uber's ambitions -- and the hype around it -- are likely to send similar shock waves through the market.
What we know about the IPO
Uber hasn't set its final pricing yet for the IPO, but it earlier said shares would sell for between $44 and $50. According to reports, the offering was oversubscribed in just the first two days of its road show, indicating strong demand. However, Uber has been conservative thus far with its pricing compared with prior estimates, and the IPO price seems likely to stay within that range.
That price range will give the company as much as $10.35 billion in proceeds before fees, or an estimated net of $8.4 billion. It will give Uber a valuation of $80 billion to $91 billion, on a fully diluted basis including stock options and restricted stock units not included in the shares' outstanding count. Based on the 1.677 billion shares that will be outstanding on IPO day, Uber is being valued at $74 billion to $84 billion.
The debut will enrich a slew of early investors in the ride-sharing leader, including Apple, Alphabet, Amazon founder Jeff Bezos, the Saudi royal family, and Softbank.
However, investors considering taking the plunge with Uber should be aware that the company, though highly ambitious, is fraught with risk. It is generating massive losses, and its growth is quickly slowing. Below are some key numbers that potential investors should be aware of:
- Uber had a $3 billion operating loss last year and an additional $648 million interest expense. Nonetheless, significant investment gains led to a GAAP net profit of $987 million in 2018. Over the past three years, the company has reported a combined operating loss of more than $10 billion.
- Revenue growth slowed from 106% in 2017 to 42% to 2018 to just 18% to 20% in 2019. Last year, it reported revenue of $11.3 billion.
- Core Platform Contribution Margin, or the margin it generates from its ride-sharing business and Uber Eats, excluding indirect expenses, was 9% last year, but expected to fall to -4% to -7% in the first quarter.
- Uber has been losing market share to Lyft (LYFT -0.36%) since the #DeleteUber campaign erupted in January 2017, and Lyft's first-quarter earnings report showed that pattern continuing. Outside the U.S., Uber appears to be losing market share to rivals including Didi Chuxing, Grab, and Yandex, according to a report by ValueChampion.
What we know about Uber's past
Beyond the usual fanfare around the IPO, there are some other related issues swirling around Uber.
First, thousands of Uber drivers began striking Wednesday morning in protest of the offering set to make billionaires out of co-founder Travis Kalanick and others. The drivers are upset about low wages and their status as independent contractors, which deprives them of key benefits like health insurance. Strikes and protests are set for at least eight U.S. cities and could bring attention once again to Uber's vulnerability to labor protests and bad press. After all, the #DeleteUber backlash was sparked by a perceived breaking of a strike at New York's JFK airport.
Elsewhere, former CEO Kalanick, whose brash attitude, massive fundraising efforts, and grandiose ambitions set the tone for Uber's swashbuckling, no-holds-barred adventures around the world in its earlier years, is being blocked from coming to the bell-ringing ceremony at the New York Stock Exchange by now-CEO Dara Khosrowshahi. The dispute underscores how much Khosrowshahi wants to put Uber's sordid history behind it.
Under Kalanick, the company gained a reputation for being an abusive corporate citizen, breaking local regulations around the world as it dove into new markets with little concern for local governments and other stakeholders. Uber has been subject to numerous lawsuits from competitors (including Google, accusing it of stealing intellectual property) and from drivers (over employment classifications and other issues). And Uber gained a reputation for fostering an environment rife with sexual harassment, as detailed by whistleblower Susan Fowler.
By 2017, Uber's reputation had deteriorated significantly. The company's growth strategy had taken several hits as it was forced into retreat in international markets like China, and it was losing market share to Lyft at home. Kalanick was ousted later that year, and Khosrowshahi has been trying to repair its image since. Among its cultural norms, the company said in its IPO, is, "We do the right thing. Period."
Though Uber's IPO brings plenty of risks for investors, the company is not without its strengths. There are reasons it's been able to raise billions in venture capital over the years, after all.
Uber's biggest asset is its control of a majority of the ride-sharing market in much of the world. In North America, Latin America, Europe, and Australia/New Zealand, Uber says it has more than 65% market share. The company claims more than half the market in India, the Middle East, and North Africa -- and that share will go up in some of those regions following its recent acquisition of Careem.
In markets where Uber has been forced to retreat, it wisely negotiated minority stakes in its rivals before it left. It owns 15% of Didi Chuxing, the Chinese leader, 38% of Yandex in Russia, and 23% of Grab, the Southeast Asian market leader. Uber truly offers global exposure to ride-sharing, and the company has powerful market positions nearly everywhere in the world. For investors looking for a stake in the fast-evolving transportation market, that's hard to ignore.
Elsewhere, Uber Eats is growing quickly, and some analysts even think it could eventually surpass ride-sharing to be the company's main business. Last year, the food delivery service's sales surged 149% to $1.46 billion, though that pace in the first quarter of 2019 slowed to 84%, due partly to increasing competition from DoorDash. Uber also has growth opportunities with Uber Freight, where it generated $125 million in revenue last year, and the micromobility sector of bikes and scooters from its acquisition of Jump. Finally, Uber's investment in autonomous vehicles presents a huge opportunity that could eventually be worth trillions of dollars, according to projections by Intel and others.
Uber's balance sheet also looks strong: The company will have roughly $15 billion in cash equivalents and $4.5 billion in debt after the IPO, allowing it to fund more years of wide losses without having to tap investors or lenders.
The Lyft effect
Rival Lyft's experience in its own IPO in March may shed some light on what Uber investors could expect. Lyft shares were originally targeting a price of $62 to $68 per share and sold for $72, as its IPO was also oversubscribed after two days of its road show. The stock surged more than 20% on its opening day but quickly gave up those gains as the euphoria passed and investors became wary of Lyft's sky-high valuation. Just over a month later, the stock trades at around $60, about 17% below its IPO price.
Uber has taken a more conservative path. Bankers at one point were targeting a $120 billion valuation for the company, and Uber seems like it will stick within its targeted price range despite shares being oversubscribed quickly. Uber's IPO should also benefit from a bountiful year for market debuts, as stocks like Zoom Video, Pinterest, and Beyond Meat have all surged on their opening days. Beyond Meat, the plant-based protein company, saw its shares nearly triple in its first trading day.
Uber is clearly hoping for a significant pop when its shares finally hit the market on Friday. After so much hype, anything less would be a disappointment.