Uber Skids On Wall Street

Uber's IPO did not go as planned.

The outlook for future offerings by money-losing technology startups dimmed with a stunning decline of nearly 8% during Uber’s first day of trading as a public company on the New York Stock Exchange. The ride-hailing firm’s performance was one of the worst ever for a major initial public offering (IPO).

Nonetheless, Uber raised $8.1 billion in the biggest IPO in five years, which should guarantee its survival for a number of years, despite its high cash-burn rate, which reached $1 billion in the first quarter. Analysts said the company’s poor showing in the wake of rival Lyft’s disappointing IPO serves as a warning to investors ahead of a raft of well-known “technology” companies—including Airbnb, Instacart, Slack, WeWork and Postmates—set to launch public offerings later this year.

“Uber’s strategy of pivoting away from being a pure play ride-sharing provider toward delivery, freight brokerage, and micro-mobility solutions makes the company more difficult to value, creating uncertainty for investors,” says Asad Hussain, emerging technology analyst at PitchBook.

Uber is investing in its fast-growing Uber Eats restaurant delivery business, which has even lower margins than its ride-hailing business. “Lyft’s more-focused business model, which primarily targets the US ride-sharing market, has enabled it to take share from Uber in the US,” Hussain says. “[Lyft’s] rides grew 53% in the fourth quarter of 2018, versus 37% for Uber.”

Legislation could also impact Uber’s take rate, he says. New York City, Uber’s biggest market, recently enacted a minimum wage for ride-sharing drivers, as well as a $2.75 tax on rides in Manhattan. With growing subsidies for its drivers, Uber ran up a loss of $3.7 billion in the 12 months ending in March 2019.

Uber, which operates in 700 cities in 63 countries, claims it is just getting started. Only 2% of the population in those cities used its offerings in the fourth quarter of
last year, leaving plenty of room for growth. More than
half Uber’s size in the US market, Lyft earns more than two times the revenue per trip, according to a report by Renaissance Capital. Each began a nationwide rollout of bike and scooter rentals.

Morgan Stanley and Goldman Sachs estimated Uber’s value at $120 billion last year. In its IPO, Uber was valued at about $80 billion, and it fell further in subsequent trading.

These disappointing results could take some of the frothiness out of the IPO market. The average first-day return for all IPOs this year is more than 25%. Beyond Meat shares soared 163% in their first day of trading, marking the first time since 2000 that the share price of a company with a market capitalization of at least $200 million increased more than 100% in its debut, according to UBS.