Just in time to announce its new valuation for its pending initial public offering (IPO), Uber Technologies Inc. announced its earnings for Q1 2019: negative $1 billion. That’s right: the company that is aiming for a valuation of $91.5 billion when it finally goes public just posted a billion-dollar first-quarter loss, demonstrating, as Reuters analyst Joshua Franklin described it, “a test of investor appetite for a high-growth but highly unprofitable business.”
While $91.5 billion might seem ambitious, it is actually far less than Uber believed it would be worth this time last year. Bankers believed at that time it might be valued around $120 billion. This new number is closer to the projected valuation immediately after its last private fundraising round in 2018 of $76 billion.
Lyft Has Investors Worried
The issue is probably due in part to Lyft’s stock performance after its IPO last month. Last week, Lyft shares were trading more than 20 percent lower than their IPO price thanks to “investor skepticism over [the company’s] path to profitability.” Lyft’s IPO ended with a valuation for the company of $24.3 billion, which was about 11 times the company’s annual revenue. Uber currently has a valuation target around 8 times its annual revenue and a target price range of $44 to $50 per share with hopes of selling 180 million shares and raising up to $9 billion. Current shareholders may sell an additional 27 million shares for a projected $1.35 billion.
3 Things You Need to Know Before Buying in Uber’s IPO
If you are thinking you cannot go wrong betting on Uber (after all, everyone else is), then make sure you know these three things before the IPO begins:
Uber will preface the IPO with an “investor road show”
This will involve the company spending a huge marketing budget pitching itself to investors. Only after the road show will Uber price its IPO, hoping to hit its target pricing thanks to all the good PR from the road show. The IPO is expected to be priced on May 9, 2019, and the company will begin trading on May 10, 2019, if all goes as planned.
Uber will have to answer questions about turning a profit
During that road show, you will likely hear a lot of really positive, forward-facing explanations about why the company is incredibly valuable even though it has not yet turned a profit. The purpose of the road show, in part, is to alleviate investor concerns about Uber’s lack of profitability and drum up enthusiasm for this type of tech stock. Listen closely and evaluate everything you hear with a critical ear. If the explanations and projections are not rationale, be careful of getting caught up in the excitement.
Look for external factors affecting pricing
Uber has an agreement with PayPal in which PayPal has agreed to purchase $500 million of stock in a private placement after the IPO price has settled. This is part of what Uber reports is an “existing partnership to explore future commercial payment collaborations.” This type of partnership can be invaluable, but it also can skew IPO pricing since Uber (and Uber buyers) know that a $500 million buy-in is coming. This could cause stocks to rise or fall artificially in advance of the PayPal purchase, depending on how the markets view the agreement.
Tell us what you think:
- Will you be buying up Uber stock in the IPO?
- Is Uber a good company for investors?
- Does it matter if Uber ever turns a profit?
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