Should I buy Uber stock?
Can I buy Uber stock? A guide to Uber’s IPO
Uber Technologies, Inc. is classified as a communications company that provides e-commerce services for car hire. The company offers a website and mobile app that allows users to request a car for hire from any mobile device text message. Uber Technologies provides transportation services to customers worldwide in about 270 cities (and, circa 2017, in more than 60 countries).
The company was founded by Travis Kalanick and Garrett Camp in 2009 San Francisco, California.
Turmoil at Uber HQ
Uber has recently suffered a litany of negative headlines that would have had (arguably) an extremely negative impact on an existing stock price…if Uber was already a publicly traded company – which it is not.
Negative press coverage has included an investigation into sexism allegations; a lawsuit over allegedly stolen intellectual property; and accusations of evading authorities (as well as dodging rules and regulations put forth by Apple Inc).
With the recent resignation of Travis Kalanick as Uber’s CEO, the company will now be run by a centralized management committee, as it attempts to navigate a wave of scandals, and ‘turn over a new leaf’.
An internal probe (led by former U.S. attorney General Eric Holder) that was conducted to investigate allegations of harassment; discrimination; and an aggressive corporate culture inside Uber led to the departure of more than 20 employees. Holder produced 47 recommendations (that included: creating a board oversight committee; rewriting Uber’s cultural values; reducing alcohol use at work events; and prohibiting intimate relationships between employees and their bosses). The recommendations were approved by Uber’s executives, and the company’s board then moved to oust Emil Michael, Uber’s Head of Business.
Uber lost or removed most of its management team in recent months, following the company’s long string of scandals. There is now a sweeping effort expected to begin, spearheaded by Uber’s remaining board members, to overhaul the company’s core culture.
When is Uber’s IPO?
An online publication, The Information, reported in April 2017 that investors had cut the price they’re now willing to pay for Uber stock on the secondary market by about 15% (i.e., to a level that values Uber at around $50 billion). Notably, there has also been a dramatic uptick in the number of Uber shareholders looking to sell.
At the same time, more buyers have come into the market, apparently looking to buy up shares ‘on the cheap’. Secondary deals on Uber stock are rare (due to restrictions that the company has placed on its stock, that bar direct transfers and sales —much more strictly than comparable tech start-ups).
Others, however, are less optimistic about the demand-side of the Uber Stock equation. “The demand side has dried up relative to the sell side,” reported Larry Albukerk, managing director of EB Exchange, a San Francisco broker. Should the board now decide to loosen restrictions (and let employees sell some shares), the inherent market imbalance creates another potential challenge for Uber. While Uber was (controversially) valued at about $68 billion USD during its last financing round, investors will now likely have to face a sharp discount to find willing buyers.
How does all of this affect an upcoming IPO?
Despite all the turmoil, Uber’s business continues to grow. Revenue increased to $3.4 billion in the first quarter of 2017, while its losses narrowed — although they remain substantial at $708 million.
Competition in the Ride-Booking Market
The emergence of on-demand rides has become a popular and successful business venture all over the world, but it has proved difficult for emergent companies that are looking to ‘break away from the pack’. Nonetheless, companies like Lyft, Curb, Southeast Asia-based Grab Taxi, India’s Ola, and China’s Didi Chuxing have all started to eat into ride-booking’s market share – and are quickly becoming huge competitors for Uber.
Lyft Inc. has been one of the more active competitors in recent months, attempting to steal away some of Uber’s core market share in the United States. Meanwhile, Uber’s internal struggles with leadership have opened up opportunities for aggressive competitors globally – who are now able to more easily lure partners; raise funds; and poach talent. Even Alphabet Inc. has started to become a threat to Uber, with its plans to produce self-driving cars via a sophisticated stand-alone business and proprietary technology initiative.
Historic Uber Revenue – Net Revenue 2019
It’s no secret that Uber has also faced significant pressure from traditional taxi companies (as well as major regulatory hurdles) around the world – ultimately being banned in a number of countries, like The Netherlands, portions of Thailand, India, China, and even Canada.
Nonetheless – despite paying up to $100 million in reimbursement damages to almost 400,000 drivers and losing over $1 billion in the first half of 2016 – it remains notable that Uber managed to gain just as much revenue during that same time period.
Uber’s ability to raise enormous bundles of private cash also remains impressive (especially for a company that is still less than a decade old). In many ways, Uber’s private fundraising is the ‘key skill’ that makes Uber attractive to today’s VC investors.
Arguably, once (or if) Uber’s negative headlines eventually settle down, investors will be carefully examining the following ‘big picture’ data:
2014 – Net Revenue: $495.3 million USD
2015 – Net Revenue: $2 billion USD
2016 – Net Revenue: $5 billion USD
Should I buy Uber stock if the company ever goes public?
If Uber can deal with its internal issues swiftly (or, more ambitiously, manage to incorporate self-driving car technology in the upcoming years, especially as it becomes more commercially and technologically tenable), the company should be able to maintain its head well above water. Uber has a strong board, solid revenue intake, and has assiduously maintained its focus on incorporating autonomous driving technology into its business model – not only in the passenger-transportation realm, but also in the massive cargo transportation industry (particularly the American trucking industry).
And – while it’s always hard to predict anything amidst the to-and-fro of fiery headlines (and volatile news cycles) – the public, and many professional investors, are still eagerly awaiting an Uber IPO. Although Kalanick has consistently affirmed his desire “to make sure [an IPO] happens as late as possible,” many believe it is still on course to happen soon – perhaps even in the next two or three years.