Uber Sets its IPO Terms, is Aiming for a Valuation up to $91.5 Billion
Ride-hailing company Uber Technologies Inc is aiming for a valuation of up to $91.5 billion in its initial public offering, potentially becoming one of the largest U.S. IPO's since Chinese e-commerce giant Alibaba went public in 2014 and raised $25 billion.
Uber on Friday set a price range of $44 to $50 per share for its IPO in an updated filing, giving it a market cap of $83.8 billion at the higher end. Uber seeks to raise about $9 billion in cash in its IPO and will tender 180 million shares.
The figure is far less than the $120 billion that investment bankers told Uber last year it could fetch, and closer to the $76 billion valuation it attained in its last private fundraising round in 2018.
On a fully diluted basis, Uber's valuation would be $80.53 billion on the low end of the range and $91.51 billion on the high end.
The updated filing comes as Uber gets ready for its investor roadshow, pitching Uber to public markets investors. Uber expects to price the IPO on May 9 and then begin trading on the New York Stock Exchange under the ticker symbol "UBER" the following day, people familiar with the matter have said to Reuters.
Uber's lower than expected valuation reflects the poor stock performance of its biggest U.S. rival Lyft Inc following its own IPO last month. Lyft shares ended trading down more than 20% on Thursday from their IPO price amid concerns over Lyft's ability to turn a profit. Like Lyft, Uber itself reported a huge Q1 loss of around $1 billion on sales of roughly $3 billion.
Uber heavily subsidized its rides to order gain market share over its rivals over the past several years resulting in its huge increase in users on the platform. In the process the company gross booking increased but Uber has yet to turn a profit.
Lyft completed its IPO last month at a valuation of $24.3 billion or around 11 times its 2018 revenue. By comparison, the top end of Uber's valuation target is around 8 times its revenue last year. Lyft became the first ride-hailing company to go public, beating rival Uber to the public markets.
Reuters reported this month that the combined value of Uber shares sold in the IPO could be around $10 billion. Uber is pitching itself as a full platform for transportation and logistics, not just as a ride hailing company. Uber is also rapidly growing its food deliverly business Uber Eats, aiming to reach 70% of the U.S. population by the end of this year.
Uber's Long Road to Profitability
Both Uber and Lyft both rely on drivers, which technically are not employees and instead are working for each company as independent contractors. Uber claims that it cannot be profitable if it were to categorize it drivers as employees, which some cities are trying to force them to do.
Companies are not legally required to pay independent contractors a minimum wage or overtime, provide them health insurance or provide them regularly scheduled breaks, which saves saves Uber money in the short term. However, backlash from the public for adopting this model could tarnish Uber's reputation in the court of public opinion.
Uber will face additional questions from investors, including when it will turn a profit, how it will navigate the transition to autonomous ride-hailing vehicles. Uber says its business model cannot support higher driver costs, such as a minimum wage for its drivers, at least for now.
Uber wrote in its S-1 filing last month that "Our business would be adversely affected if drivers were classified as employees instead of independent contractors."
The company believes it is merely the go-between drivers and riders and argues that drivers are independent contractors and, therefore, the company's actual customers. Uber told MarketWatch last month that the Securities and Exchange Commission has signed off on this business model ahead of its IPO filing.
During Uber's IPO roadshow, Chief Executive Dara Khosrowshahi will also need to assure investors that he has successfully changed the company's toxic culture and business practices after a series of embarrassing scandals over the last two years.
Those have included sexual harassment allegations, a massive data breach that was concealed from regulators, use of illicit software to evade authorities called "greyball" and allegations of bribery overseas.
"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.
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