Ridesharing company Uber is ready to take the plunge into the shareholder scrutiny pool as a public company when it debuts its initial public offering (IPO) with its pricing set for May 9 and its availability to trade on May 10.
The company revealed more of the terms of its IPO on Friday and here are three takeaways:
1. Value Less Than Initial Expectations
Uber’s valuation, which was duly disclosed in a regulatory filing, came in at less than the $120 billion that investment bankers valued the company at last year. Final valuation numbers were more in line with the $76 billion valuation obtained during a round of private fundraising in 2018.
The lower value comes after its competitor Lyft and other IPO peers have investors wary of their ability churn a profit as a public company.
Pinterest lost $63 million in 2018, which almost seems miniscule next to the over $900 million loss that Lyft revealed prior to debuting its IPO. Uber has been losing more than $800 million a quarter ahead of its IPO offering in mid-May.
“We believe that recent price reductions for both Uber and Lyft may be indicative of investor hesitance to invest in highly capital-intensive, deeply unprofitable and untested business models at this late stage of the economic cycle,” PitchBook analyst Asad Hussain said.
2. Bigger May Not Be Better
Uber’s public filing set a target price range of $44 to $50 per share for the IPO. In addition, the company will offer 180 million shares for sale in order to raise up to $9 billion in capital.
Together with another 27 million sold by existing Uber IPO investors, the company is looking at $1.35 billion. According to a Reuters report, the combined value of the IPO could reach $10 billion to make it the largest in the United States, rivaling only the Chinese e-commerce giant Alibaba Group Holding Ltd in 2014.
However, big capital raises also portend to bigger issues raised by skeptical investors. For example, will autonomous driving technology supplant the need for ridesharing companies like Uber when it comes to attaining profitability?
3. Core Business Model in Question
Uber hopes to come out of the starting gates better than competitor Lyft. After debuting with an opening price of $72, Lyft struggled with analyst downgrades early on in its publicly-traded existence.
However, Uber could suffer the same fate as both share similar core business models.
“When it comes to Uber, we believe there are still questions over the current car-sharing model, the economics of which are not immediately or obviously attractive for sustainable, long-term investment,” Mark Hargraves, head of Framlington Global Equities, wrote in a note.
IPOs in an ETF Wrapper
Investors who want exposure to the IPO market can opt for the Renaissance IPO ETF (NYSEArca: IPO) or the Renaissance International IPO ETF (NYSEArca: IPOS).
IPO seeks to replicate the price and yield performance of the Renaissance IPO Index, which is a portfolio of companies that have recently completed an initial public offering and are listed on a U.S. exchange.
IPOS adds an international spin to the IPO market. IPOS tracks the rules-based Renaissance International IPO Index, which adds sizeable new companies on a fast-entry basis with the rest upon scheduled quarterly reviews. Current IPOS holdings include SoftBank Corp, Xiaomi and China Tower Corp.
For more market trends, visit ETF Trends.