Uber Technologies Inc (NYSE:UBER) crashed in its much-anticipated debut as a publicly traded company Friday, opening at US$42, 6.6% below its US$45 IPO price.
The ride-sharing app has raised just over US$8bn despite pricing shares at the lower end of the planned range ahead of its Wall Street debut under the UBER ticker symbol.
Amid a deep pullback this week in the broader markets over worries about US-China trade relations, and a disappointing IPO for rival Lyft Inc (NASDAQ:LYFT) as a backdrop, Uber sideswiped on its road to its first trade.
As part of the IPO, Uber sold 180mln shares at a price of US$45 apiece, which compared to the US$44-US$50 range indicated last week.
Shares in US IPOs usually begin to trade, or "uncross", with all the buy and sell orders matched, by around 11.00 am US time.
Another 27mln shares owned by existing Uber shareholders could be issued in an overallotment offer in the coming four weeks, raising another US$1.2bn that will not result in any proceeds for the company.
Uber, which offers services ranging from ride-sharing to food delivery and made an operating loss of roughly $3bn last year, will have an initial valuation of US$75mln when it begins trading. Wall Street bankers had suggested to Uber last year that a valuation of as much as $120bn was possible, though the company’s co-founder Travis Kalanick’s 8.6% stake will still be worth a tidy US$7.1bn at the float price.
At the end of last year, Uber had 91mln monthly active platform consumers and 3.9mln drivers on its books, completing an average of around 14mln trips each day.
While like many other rising tech stars, Uber has never made a profit but has millions of users and its technology has attracted lots of excitement. Last month, the Japanese trio of Toyota Motor Corp, Denso Corporation and SoftBank Group Corp announced a $1bn combined investment in Uber’s Advanced Technologies Group, a new unit that aims to accelerate the development and commercialization of automated ridesharing services. This was not the first investment in Uber by SoftBank, with conglomerate's stake last year valued at around $3.8bn.
Lyft lessons learned
Uber's IPO pricing towards the bottom of the range was unsurprising, analysts said.
"It’s a rough time to be coming to the market after the selloff this week but this IPO exists to a degree in its own bubble," said Neil Wilson, chief market analyst at Markets.com. "Are you betting on the long payoff? If not, you may well be disappointed – profits are not coming any time soon."
He said a spike in the shares on Friday's debut would not be a shock as he saw Uber's conservative approach to pricing near the bottom of the range a result of learning from Lyft’s bumpy post-IPO ride, with some of Lyft's sellers likely to be doing so in preparation for the Uber listing. "FOMO is a strong emotion."
Nevertheless, Wilson said he main concern was Uber's slowing revenue growth. "Whatever the cash burn, you’d want to see accelerating top line growth in a disruptor coming to market."
Jake Robbins, fund manager at Premier Asset Management, agreed that Uber was similar to many of the other loss-making disruptors coming to the market of late, with a goal of becoming the dominant player in whatever industry they happen to be in.
"As such," Robbins said, "the entirety of the valuation of Uber lies sometime into the future, maybe even decades away if ever at all, before they begin to generate profits and cash flow. This makes their shares extremely sensitive to perceptions around their growth rates and their ability to dominate their competition.”
He said that Uber’s long-term share price will be driven by their ability to take large market shares around the world and eventually turn that dominant position into a profit.
--UPDATES with opening price--