Uber Technologies Inc. stock hit public markets with a sigh Friday, trading below its initial public offering price.
The ride-hailing giant raised $8.1 billion in its IPO on Thursday by pricing shares at $45 apiece. The shares began trading on the New York Stock Exchange below that IPO price and finished the day around $41.60, down 7.6%. The overall market also faltered, disturbed by an overnight escalation in the U.S.-China trade war, but it ended the day up.
“It’s definitely not the best day to go public. There’s clearly a lot going on. A trade war with China is bad timing. There’s nothing to be done about it, but it’s not great timing,” said former Uber advisor Bradley Tusk, who holds a stake in the company.
Dan Ives, equity analyst at Wedbush Securities, said investors were being cautious after the “Lyft train wreck.” The smaller ride-hailing company’s stock has tumbled nearly 28% since its March IPO.
But whereas Lyft priced its IPO above its expected range, Uber’s IPO price was already conservative. The $45 per share was toward the bottom of its marketed range of $44 to $50, and it gave Uber a market value of $75.5 billion — below its last private market value of $76 billion. The fully diluted value in the Uber IPO, including restricted stock units and other shares, could have been about $82 billion, far below the $120 billion that investment bankers jockeying to lead the offering floated last year.
San Francisco-based Uber was founded in 2009 when two of its co-founders — Travis Kalanick and Garrett Camp — decided they wanted to be able to order a ride in a luxury car at the push of a button. With Kalanick as chief executive, the company elbowed its way into the global transportation industry.
As it grew, the company was beset by a series of scandals about its flagrant disregard for transportation regulations and, internally, accusations of harassment and an aggressive, unchecked corporate culture.
While planning to go public, Uber worked to clean up its image. It ousted Kalanick in 2017. CEO Dara Khosrowshahi took the helm, resolving to take a more responsible, contrite tone.
Uber has salvaged some of its reputation, though it is still bleeding money as it grows. Last year, it reported an operating loss of about $3 billion; that was smaller than its $4-billion operating loss the year before. Its revenue rose to $11.3 billion in 2018 from $7.9 billion in 2017.
Some — such as Ives— say Uber is poised to become a juggernaut, the “Amazon of transportation.”
Others are deeply skeptical that the company will be able to turn a profit.
“I would never ever advise anyone to invest in this company,” said Ashley Nunes, a researcher at MIT who studies regulatory policy. “It’s remarkable to me that a company can hemorrhage this much cash and still drum up this much interest from investors.”
When Kalanick entered the New York Stock Exchange on Friday morning with his father, Donald, he “was met with enormous applause,” according to a tweet from New York Times reporter Mike Isaac.
Kalanick had wanted to be on the balcony when the opening bell was rung, but he and the other co-founders were not given that honor. Drivers and early employees stood with Khosrowshahi on the balcony while Kalanick, Camp and fellow co-founder Ryan Graves watched from the floor.
A parade of unicorns — tech start-ups valued at more than $1 billion — have gone public in recent years, and Uber’s IPO was the most anticipated. Snapchat app maker Snap Inc. hit the market in 2017, followed by the likes of Dropbox, Pinterest and ride-hailing rival Lyft.
Lyft’s flop and Uber’s rocky start could be a worrying sign for other unicorns that are expected to go public soon, such as Slack, Palantir and Airbnb.
Uber’s was the ninth-largest U.S. IPO of all time and the biggest on a U.S. exchange since Alibaba Group Holding Ltd.’s $25-billion global record holder in 2014, according to data compiled by Bloomberg.
Ives describes Uber as a “three-headed monster” consisting of its core ride-hailing business, its Uber Eats food delivery arm and and its Uber Freight shipping logistics arm.
“The cherry on top of the sundae is autonomous driving technology,” he said. The company’s self-driving business landed a $1-billion investment last month.
In pitches to potential investors before the IPO, Uber touted its plans to expand in logistics and other transportation businesses, including scooters, autonomous driving and mass transit, a person familiar with the matter has said.
Arun Sundararajan, a professor at New York University’s business school, said that while going public gives Uber money to capture more of the transportation market, it also could push the company to put quarterly targets ahead of its broader ambitions.
“The trillion-dollar valuation will come if they can spend the next five to 10 years getting to that place where more is spent on Uber than on any other form of transportation,” Sundararajan said. “The trouble is, that’s going to require keeping investors at bay who are putting pressure on Uber to deliver earnings.”
Ives shrugged at the significance of Uber’s first day of trading: The company has a unique opportunity to go after its target market, he said, and what it can build in the next five or 10 years is more important.
“Now the question is: Will investors buy into that vision and at what price?” Ives said.
Bloomberg was used in compiling this report.