Investing in the Uber IPO: What to Know
In a year of hotly anticipated IPOs, perhaps one of the most anticipated is Uber. The ridesharing company’s IPO this week is set to be one of the largest in history. Here’s a dive into the company and what to know about its IPO.
What Is an IPO?
An initial public offering, or IPO, is the first time that a company lists shares on a stock exchange, making them available to the general public. Before an IPO, a company is private, and typically does not have to disclose financial information or details about how it runs its business.
However, once the company “goes public” the Security and Exchange Commission requires much of that information to be made available publicly, as well. Companies often go public to raise capital through the sale of stock to continue growing.
To facilitate the IPO, an underwriter, usually an investment bank, helps the company determine how many shares to offer at what price, and helps drum up interest among investors.
When Is Uber’s IPO?
What Do We Know About Uber?
As a private company thus far, Uber doesn’t have to disclose much about its inner workings. But we do know some things about the company. It was founded in 2009 by Garrett Camp and Travis Kalanick.
The two were unable to catch a cab on a visit to Paris, which sparked the idea for the ridesharing service. The company started as UberCab. It picked up its first passenger in 2010, and dropped the “cab” from its name in the same year. The company is now in 65 countries and 600 cities, and it completes 15 million rides per day .
In addition to ridesharing, Uber has diversified into food delivery with UberEats, scooters, freight, and driverless vehicles.
While we don’t know a lot about how Uber makes money, we do know that it’s not always profitable. In 2018, the company made $997 million by selling parts of its business in Southeast Asia and Russia. Barring those sales, Uber lost $1.8 billion that year.
The year before, it lost $4.5 billion , and it may have lost over $1 billion so far this year. These losses may be partly due to the subsidies Uber offers to attract drivers and riders and stay competitive over rivals, like Lyft.
How Do the Numbers Look Going Forward?
Uber’s spending continues to grow and revenue has slowed. Company spending grew to $14.3 billion in 2018 . In 2018, revenues rose 42% from 2017to $11.3 billion. While that rise may be nothing to scoff at, it does represent a slowdown. After all, revenues from 2016 to 2017 jumped 85%.
That said, some of Uber’s forays into diversification seem to have paid off. Uber Eats almost tripled its revenue in 2018 to $1.5 billion. Negative profits and slow growth have some analysts worried about future performance and whether investing in the stock will be worth it.
How Does Uber Compare to Other IPOs in 2019?
The class of 2019 has so far seen some impressive IPOs. Video conferencing company Zoom gained 120% a month after going public. Beyond Meat, creator of the meatless Beyond Burger, went public on May 2, ending the day up 163% in the best-performing IPO in almost 20 years. Stocks started trading at $46 a share and were trading above $80 a share the following week.
Not everyone has fared so well. Uber’s main competitor, Lyft, went public on March 29. Despite trading up on its first day, shares of the company quickly slid and have yet to recover. The poor performance raised questions over what had gone wrong and whether the company was overvalued. What’s more, the disappointing IPO cast a shadow over Uber’s IPO, leaving investors and analysts wondering if they were in for a repeat performance.
What Did Uber Learn from Lyft?
Ahead of its IPO, Uber has taken some actions to avoid Lyft’s perceived missteps. First, to avoid appearing overvalued, it lowered its valuation to as low as $80 billion. Some had suggested earlier that the company was worth as much as $120 billion .
Lyft may have suffered from a large hedge instated during a trade between George Soros and Carl Icahn, two investing heavyweights. A hedge is an investment tool that protects against potential losses. And in this case, it may have put downward pressure on Lyft stock early on.
Uber has tried to close any loopholes in its IPO lock-up period that would allow such a hedge. The lock-up is a period of time after the IPO during which insiders aren’t allowed to sell shares. It prevents them from flooding the market and causing share prices to drop while the stock is getting off the ground.
What Does This Mean for the Average Investor?
Despite its best efforts, we can’t be sure what will happen when Uber goes public later this week. It may become the IPO behemoth some predict it will be, or it may go the route of Lyft and see falling share prices.
Investors can often access stocks from IPOs through investment vehicles such as exchange-traded funds (ETFs) or mutual funds. For example, SoFi offers ETFs that may include IPO stock.
SoFi isn’t affiliated with Uber or its representatives.
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