One of the bigger disappointments of the rookie class of 2019 is Uber (NYSE:UBER). The global top dog in the fast-growing ride-hailing market went public at $45 in May, and it's been driving in reverse for most of its brief life on the publicly traded highway. The stock closed just below $30 on Thursday, proving that only Pegasus -- and not unicorns -- can fly.
Uber shares have surrendered a third of their value since its springtime debut, and its smaller rival, Lyft (NASDAQ:LYFT), is faring even worse since going public two months earlier. It's a cruel remind that investing in IPOs is as risky as it may be exciting. An investment of $1,000 in Uber's IPO at the time of its offering would be worth just $666.44 today.
It's a fender bender
Uber and Lyft are broken IPOs, and they're not alone. A whopping 64 of the 153 stocks to go public on a major stateside exchange are currently trading below their underwriter pricing. Lyft may be growing faster, but its 36% slide since hitting the market at $72 in March is actually worse than Uber's 33% decline.
There's no denying that this is an industry that's growing in popularity. Revenue rose 30% to $3.8 billion in Uber's latest quarter. The biggest gains aren't coming from its flagship personal mobility platform -- as Uber Eats and its nascent freight logistics platform are growing faster than the namesake carsharing service -- but the overall business should continue growing at a double-digit percentage clip for the next several years.
There will be regulatory challenges, especially early in this niche's growth. Just this month alone we've seen setbacks in England and Germany, and it could get more expensive to operate in California come 2020.
A lack of profitability is a problem for both Uber and Lyft, but each company recently laid out timelines pointing to bottom-line improvement coming along sooner than Wall Street worrywarts were projecting. A lot will happen between now and then. There will be opportunities for Uber to prove the scalability of its model, and it may shed some segments that have no clear path to profitability. Recent reports have it looking to unload its deficit-saddled Uber Eats business in India.
We are still in the early innings of the personal mobility market, and it's fair to say that both Uber and Lyft went public at lofty initial valuations. However, top-line growth continues to be impressive. This a real shift in transportation trends that's even weighing on new car sales in this otherwise buoyant economy. Uber and Lyft have had a rough rookie year, and that hypothetical $1,000 plunked on Uber at its IPO is worth a third less right now. The future should be more promising, especially if Uber as the global leader lives up to its potential.