The indifferent start to Lyft’s IPO which has seen the shares fall below their IPO price, doesn’t appear to have deterred Uber from pressing ahead with its own plans, as the company announced plans to list on 10 May, with the shares pricing the previous day.
If investors had concerns about the valuation of Lyft at over $20bn, then Uber’s valuation at four times higher is equally optimistic, coming in at between $80bn and $90bn. Uber is looking to raise $9bn at a price of between $44 and $50 a share, for 180m shares. This is below initial estimates that put its valuation in excess of $100bn, which would suggest that Lyft’s belly flop may well have concentrated some minds, with Uber management being more realistic about getting the IPO out of the gate.
In its defence Uber does have some significant backers, with PayPal putting in $500m, at the IPO price of $84 a share in the form of a private placement, while in August last year Toyota invested $500m into Uber to help develop self-driving cars, a sum that valued the business then at around $72bn. Other stakeholders include Softbank, which owns a 16.3% stake, while Google-owner Alphabet owns just over 5% of the business as part of its 'other bets' programme.
It also turns out that the Saudi Arabia Public Investment Fund also invested $3.5bn in Uber way back in June 2016, a revelation that proved to be rather awkward when it was made public at the end of last year, in the wake of the horrific murder of journalist Jamal Khashoggi. This stake put the valuation of Uber at around the $60bn mark at the time, with the fund also having a seat on the board.
In summary the company has no shortage of backers, which means that it can certainly absorb the effects of any additional cash burn, but even allowing for that it still seems a high price tag for a company that has no discernible assets, and which has come under fire in recent years for its behaviour in terms of its employment practices.
The company has also fallen foul of various regulators around the world meaning that the risks are quite high that it could find itself shut out of some markets, or having to pay additional charges to comply with regulatory standards in different jurisdictions. Management have already had to oversee the paying of various fines from markets as far apart as California to the Netherlands, where it had to settle case for €2.3m.
The business has continued to grow with 91m users, with a signficant global reach, but it still made an operational loss of $3bn, despite generating income of $9.2bn from its taxi business, though revenues here look to have plateaued.
This makes it even more crucial that the business is able to diversify in other areas, with Uber Eats also showing good growth potential, although both delivery and ride-sharing apps are becoming an incredibly crowded and competitive market place. Revenues from its food business did rise to $1.5bn last year, a rise of 149%, but it will take more than that to start generating a return at a time when margins are likely to remain tight.
While management are keen to extol the virtues of the growth potential of the business, it is hard not to escape the fact that the company is spending money faster than it is growing its business. Last year the company posted a loss of $3bn, against a backdrop of cash burn of about $2bn a year.
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