Uber’s IPO priced at the (very) low end of revised ranges on Thursday (May 9). Investor sentiment is muted amid Lyft’s own downturn, general market volatility and, of course, a sea of red ink. Yet, beyond the near-term bumpiness as a newly publicly traded entity, might Uber’s “Uberization” of the platform model be its secret weapon over the long term?
High end? Low end? Smack in the middle? As it turns out, after much anticipation, it’s the low end.
Uber’s pricing came on Thursday (May 9) night and comes before the open, which may say a lot about not only Uber’s uber initial public offering (IPO), but how investors may be viewing tech in general. Friday (May 10) is the debut, of course, with Thursday’s New York Stock Exchange offering bringing a bit of anticipation into the day.
The range had been $44 to $50, according to The Wall Street Journal (WSJ), with Uber set to price the IPO at the midpoint of that range, or possibly below. Now, it’s officially and decidedly below the midpoint at the very low end — at $45, in fact. (There is not, as of this writing, much clamor to bid that price up amid orders from investors.)
Previously, Uber had had a pricing range of $48 to $55. Last year, noted the WSJ, the valuation had been rumored to be $120 billion, if and when the ride-hailing giant came to market. Now, that number is closer to $82 billion.
There are signs of speed bumps, of course, that would — and probably should — temper that enthusiasm, at least over the near term. There are worker strikes over pay, and negative publicity or uncertainty over how various legal battles will play out (such as whether drivers are employees or contract workers), which can muddy the waters of perception.
There are also signs that the driver-for-hire model may have a dent to make in traditional avenues of daily life, and that the shift represents a pie big enough for companies like Lyft, Uber and others to share as they seek to displace traditional car ownership. Lyft, for example, said in its latest earnings call that as many as 300,000 people have gotten rid of their cars because of Lyft.
The read-across from Lyft has been cloudy enough to perhaps throw some shade on Uber. Lyft, of course, is making its bed with transportation, for good or for ill, and Uber has been branching out in an effort to find ancillary revenue streams, such as with food delivery. Losses, though, are losses across that model, evidenced by the latest showings for Lyft, which logged $1.1 billion in red ink this past quarter, and Uber, with a cumulative $10 billion in losses over the past few years.
The idea of a broken IPO — should it happen for Uber — would be a strong signal that, beyond raising the $9 billion or so that Uber will reap from the initial sale, the company has its work cut out for itself. The ride-hailing space is becoming ever-more competitive, and the idea of using incentives in different markets to keep drivers on the roster, and consumers climbing into back seats, is less than an ideal one. When everyone offers incentives, it’s a race to the bottom.
Uber’s initial advantage is that it has, thus far, been funded by venture capitalists. By going public, though, there is another voting machine in place: It can tap new money through future share sales, ostensibly, or even go toward other funding sources, should that need ever arise. However, those conduits may be fickle.
That is especially true now. The headlines are focused on trade disputes and the interconnectedness of the world economy. That’s a factor, too, for the success of companies as global in scope and ambition as Uber — one that may make for a rough road ahead.
Yet, a road can be long, marked by twists and turns. Here is where, even with a bit of dampened enthusiasm headed into the Friday bow, Uber may be differentiated enough to command a valuation (measure in market cap) greater than that of Lyft.
Uber has been using its platform to gain scale and scope in a way that may be reminiscent of another platform-focused company that found a niche, then went (very) big. That would be Amazon, which started with books and kept moving into adjacent verticals, then pretty much was and is (and likely will be) everywhere. Along the way, the model gained huge traction — enough to turn billions of dollars of red ink into profit, and bring the stock price to rarefied market cap territory along the way.
In the same way, the ride-hailing company’s start has been an echo of sorts, and may travel the same road. The initial niche was transportation, the broader territory logistics. Logistics? Well, that covers a lot of, ahem, ground. The range of transportation options — the kind that get people where they want to go, when they want to get there — spans UberX and UberPool to a metered taxi offering and car rentals. If there are wheels involved, then Uber seems to be here, there and (perhaps it hopes) everywhere. The Amazon Effect (of a different sort) looms large here.
Yes, the IPO may be viewed as a disappointment, given the muted pricing. The key, though, is that the platform is in place, and may be tweaked. However, the gestalt approach of bringing buyers and sellers of services on demand is there, and can be taken to other use cases.
The ease of payments has been seemingly embraced, and is now expected by consumers. The network has been scaled to Uber Eats, with delivery in place. More recently, pure logistics, via Uber Freight, has been bringing transparency in getting goods to and from various points of supply chains. The model has also been scaled in healthcare, delivering patients to their healthcare providers.
Such diverse revenue streams mean that 1) Uber is willing to invest and lose money to use its platform model and create new platforms that 2) bring digital on-demand services to new verticals. Maybe investors are only looking at red ink. Then again, a plethora of revenue streams offers growth, and enough diversity, to weather the vagaries of only having, say, one or two niches.
The road as a newly public company will be bumpy, for sure. However, it’s too soon to see what’s over the horizon for Uber.
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