Another day, another subtle move toward the Uber IPO, the much-awaited initial public offering of the (in)famous ride-hailing giant.
The San Francisco-based ridesharing company is reportedly selling its Southeast Asia division to Grab, its largest competitor in the region. With Uber hemorrhaging money in the region and Grab boasting a 95 percent share of the market, an exit probably would’ve made sense years ago.
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There’s been a lot of table-setting for the expected 2019 Uber IPO recently — an event investors have eagerly awaited for years — but there are also signs the inevitable Wall Street debut is losing its luster every day it stays private, despite its most recent efforts.
Savvy signaling for an Uber IPO in 2019. To its credit, Uber is doing much of what it must do to maneuver itself into a good position for a public offering next year.
Most importantly, Uber took the necessary step of pressuring founder and former-CEO Travis Kalanick to resign. Kalanick oversaw great growth, but the costs were too high: a sexist culture, a lawsuit with Alphabet Inc (Nasdaq: GOOG, GOOGL) over stolen trade secrets, a 57 million-user data breach (and resultant cover-up), and allegations of spying on Lyft drivers and duping government officials, to name a few.
The installment of former Priceline Group ( PCLN) CEO Dara Khosrowshahi in 2017 put that era behind the company. He’s publicly set 2019 as the IPO deadline, and made several moves to position the company for it:
— In early 2018, Uber and Google’s self-driving division Waymo reached a surprisingly quick settlement in a contentious trade secrets lawsuit. Uber agreed to pay $245 million in equity, making Waymo and ultimately GOOG invested in its success.
— In December 2017, Japanese investment bank Softbank made a strategic investment in Uber, buying 17.5 percent of the company at a $48 billion valuation. Stipulations in the deal added independent board members and eliminated super-voting shares Kalanick and his allies held, diluting their power significantly.
— Cutting its losses in Southeast Asia will help shore up Uber’s P&L in a hopeless market. By seeking equity from Grab instead of cash, the company would retain a stake in its successful competitor.
Uber also did this back in 2016 with the money-losing Uber China, agreeing to be absorbed into Didi Chuxing in exchange for a roughly 18 percent stake of the combined company.
All these moves point to an Uber IPO on the horizon. And these moves, for the most part, were smart. Unfortunately, a combination of ominous reasons make the upcoming Uber IPO look less exciting by the day.
How Uber missed its IPO window by a mile. Each day it stays private Uber gets further from those idyllic days when it was the dream holding of every investor.
Uber’s waning status on Wall Street isn’t an opinion. Even good news for Uber recently has come with a tinge of pain: Softbank’s big investment valued Uber at $48 billion, a 30 percent-plus haircut from the company’s $70 billion valuation just 12 months before.
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Then there’s the blatant issue that seemed to have elude the financial media and public investors clamoring for an IPO back in 2016: Uber loses money, hand over fist, everywhere. Even in its most mature market, the U.S.
Globally, and in just the last three months of 2017, Uber lost $1.1 billion. In one quarter.
The ride-hailing market is becoming more relentlessly competitive as time goes on. Lyft is getting stronger and making alliances. Apps like Via, Juno and Curb are gaining traction, and Tesla ( TSLA) has talked openly about competing in ride-hailing just a few years down the line.
And then there’s the intractable, intangible problem: Uber’s image. It’s arguably irreparably damaged after the relentless string of scandals that followed the company around like a cartoon cloud over the last few years.
Uber needs a hasty IPO to stop the bleeding. Uber’s recent moves show that the new CEO Dara Khosrowshahi understands the urgency to go public. That’s good for current shareholders, because there is an urgency. Here are several reasons Uber’s IPO may experience dwindling demand:
— If Uber mis-times the market and hasn’t gone public by the time the U.S. economy softens next, things could get ugly. As we enter the 10th year of a bull market, investors are starting to remember risk again. Companies losing $1.1 billion a quarter may not be en vogue much longer.
— With increasing competition, the self-driving car remains Uber’s best hope for long-term dominance. Given there are dozens of other companies — many with greater resources, institutional knowledge, or partnerships — working on this same thing, why buy Uber stock and pray it wins the autonomous lottery?
— The quicker the Uber IPO, the less diluted the ride-share market. Silicon Valley and Detroit have autonomous vehicles, right there with electric vehicles, as a top priority on their to-do list. If Amazon.com (AMZN) makes free ride-hailing another Amazon Prime benefit, would Uber even survive?
[See: 7 of the Best Stocks to Buy for 2018.]
By the time the Uber IPO rolls around in 2019, the public may do better to think of the once-mighty startup as mostly an index of market-leading ride-hailing companies across the world. As for the Uber part of the business, that’s become something almost unimaginable as recently as two years ago: a turnaround story.
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Why the 2019 Uber IPO Is Becoming Less Attractive Every Day originally appeared on usnews.com
