What you need to know about Uber's much-hyped IPO
In the past decade, Uber Technologies Inc. has evolved from scrappy startup to global powerhouse with a brand that is now a verb.
“The management who founded this company certainly made their mistakes, but they built a great company. And I get to take that to the next stage,” Uber CEO Dara Khosrowshahi told BNN Bloomberg in a television interview last September, referring to scandals that engulfed the company under co-founder and former CEO Travis Kalanick.
That next stage includes a much-hyped IPO, which will be one of the biggest in history. Upbeat analysts say the excitement surrounding Uber’s move to public markets is warranted.
“Ride-sharing is one of the transformational areas of the consumer ecosystem. And investors are getting their first bite at the apple,” Dan Ives, managing director and equity analyst with Wedbush Securities, told BNN Bloomberg in a recent television interview.
Indeed, Uber’s big debut comes on the heels of its younger rival Lyft Inc.’s initial public offering last month.
In a new research report, Wedbush described Uber as being on a transformational path, similar to the ones Amazon.com Inc. took with retail and Facebook Inc. took with social media.
“Lyft’s IPO was just the appetizer,” according to Ives. “Uber is the meat and potatoes.”
Uber’s revenue grew by more than 40 per cent to US$11.3 billion last year, compared to Lyft’s US$2.2 billion.
Its top line performance was fuelled by a network of three million drivers operating in 63 countries around the world. That scale has enabled Uber to accommodate an astonishing 15 million rides each day.
“Companies like Uber are redefining how people move around,” Gene Munster, tech analyst and venture capitalist with Loup Ventures, told BNN Bloomberg in a television interview. “You can make a lot of money investing in companies like that over the longer term.”
Still, Uber has not yet figured out how to run a profitable business. It posted an operating loss of US$3 billion last year. Khosrowshahi previously acknowledged in his television interview with BNN Bloomberg that Uber will “have to show a path to profitability,” but skeptics are waiting for more evidence.
“Sometimes the best products don’t make for the best businesses, but the retail investors haven’t woken up to that,” Bruce Croxon, venture capitalist and co-founder of Round 13 Capital, told BNN Bloomberg in a television interview.
Uber’s efforts to limit financial losses could also be slowed by its costly battle with Lyft – which raised US$2.2 billion through its own IPO – for new customers.
“It’s not obvious the business model will support two companies,” veteran tech investor Roger McNamee told BNN Bloomberg in a recent television interview. “I worry that it’s like what happened with Sirius and XM in the satellite radio business, where it didn’t work until they merged. The amount of money Lyft raised from its IPO almost guarantees it will be around long enough to get merged into Uber.”
Beyond ride-hailing, Uber is betting on businesses such as Uber Freight, which connects truck drivers to available loads. And the company is expecting more big growth from its Uber Eats unit.
“It’s one of the fastest-growing parts of our business – the largest food delivery player globally, outside of China,” Khosrowshahi noted in his interview. Currently, Uber Eats is connected to more than 200,000 restaurants in 500 cities, which includes high-profile partners such as McDonald’s.
Last year, Uber Eats generated nearly US$1.5 billion in revenue. That’s up 149 per cent from US$587 million the previous year, and compares with just US$103 million generated in 2016.
On top of that, Uber has made major bets on electric bikes and scooters. And it spent US$457 million on R&D last year, related to priorities such as autonomous vehicles and flying taxis, which the company has promised to deliver by 2023.
“These businesses are not going to be profitable for a long time, but hold incredible growth promise,” Khosrowshahi told BNN Bloomberg.
The ride could be a rocky one for investors in the short term. But longer term, there are plenty of believers.
“For investors who can look out over the next five years, companies like Uber, Lyft and Tesla should benefit handsomely as the future of transportation unfolds,” Loup Ventures’ Munster said.