Uber's Long Road to IPO Is Ending at Less-Than-Ideal Moment

(Bloomberg) -- When you’ve waited a decade to go public, it’s natural to want the best possible conditions to make an entrance. In that regard, 2019 hasn’t been kind to Uber.

After 10 tumultuous years as a private company, the most highly valued startup in the U.S. is finally ready to make its market debut. Ride-hailing giant Uber Technologies Inc. is due to price shares in its long-awaited initial public offering after the market closes Thursday. While the listing is still expected to be the largest in the biggest year for technology IPOs since 2014, it’s unlikely to hit the highs that were first expected.

Uber last raised money from Toyota Motor Corp. in August, at a valuation of about $76 billion. The San Francisco-based company is now considering pricing shares at the midpoint of the marketed range or slightly below, according to a person familiar with the matter. That could see the company debut with a market value just above that of its most recent funding round, at about $79 billion.

Last year, bankers jockeying to lead the offering told Uber it could be valued at as much as $120 billion in an IPO.

This year, widely expected to be the busiest for mega U.S. tech listings this century, started with a partial government shutdown that shuttered the agency that approves IPO documents for 35 days, all but killing activity in the first quarter. After submitting its confidential filing in December, Uber -- along with rival Lyft Inc. and a host of other hopefuls -- was left sitting on the sidelines while U.S. stocks enjoyed the best start to a year in at least a decade.

Today, the picture looks very different. Companies have been rushing to market, with Lyft, Pinterest Inc. and Tradeweb Markets Inc. all raising more than $1 billion each since late March. Markets, meanwhile, aren’t looking so hot. U.S. stocks fell for a fourth day Thursday as trade tensions escalated between the U.S. and China, extending the 2% loss that started the week.

Lyft, Markets

“They’re looking at the market as well as what’s happened to Lyft,’’ Wedbush Securities analyst Dan Ives said. Shares of Uber’s biggest competitor tumbled to a record low on Wednesday after it disclosed a steep loss in its first quarterly earnings report as a public company. The company’s market capitalization briefly dipped below its last private valuation of $15.1 billion in premarket trading Thursday. Lyft’s valuation fell as low as $14.3 billion as shares extended losses to drop as much as 27% below its IPO price.

However, because Lyft is focused on the domestic ride-sharing market, Ives said the company is a “one-trick pony” compared to Uber, a “three-headed value monster.” That’s certainly how the company’s executives and their advisers have been pitching Uber to potential investors in cities including New York, London and San Francisco.

On the roadshow, Uber touted its plans to expand in logistics and other transportation businesses, including scooters, autonomous driving and mass transit, a person familiar with the matter has said. The company aims to become a one-stop shop for customers who would only need to use one platform for multiple services.

Uber's Long Road to IPO Is Ending at Less-Than-Ideal Moment

Arun Sundararajan, a professor at New York University’s business school, said that while going public will give Uber money to capture more of the transportation market, it could also push it to put quarterly targets ahead of its broader ambitions.

“The trillion dollar valuation will come if they can spend the next five to 10 years getting to that place where more is spent on Uber than on any other form of transportation,” Sundararajan said. “The trouble is that’s going to require keeping investors at bay who are putting pressure on Uber to deliver earnings.”

“The freedom to play the long game gets significantly reduced when you go public even when the resources to do so are increased,” he said.

Like many of the IPO class of 2019, Uber is deeply unprofitable. It lost $3.04 billion last year on an operating basis on revenue of $11.3 billion, bringing total operating losses over the past three years to more than $10 billion, according to filings.

Uber has been working with Morgan Stanley to lead its IPO plans, alongside Goldman Sachs Group Inc. -- once the company’s go-to bank -- and Bank of America Corp. Its shares are set to trade on the New York Stock Exchange under the ticker UBER.

Early Investors

Uber has long been Silicon Valley’s wunderkind, with a cavalcade of elite venture investors betting on the ride-hailing business from the start. Blue-chip investors First Round Capital and then Benchmark led the earliest rounds, cutting checks to the startup that could soon prove to be extremely lucrative investments. Over multiple funding rounds its valuation soared: from $60 million, to $3.7 billion, to $42.8 billion, to -- in 2016 -- $62.5 billion when Saudi Arabia’s Public Investment Fund wrote the company a $3.5 billion check, sent in a single wire transfer.

But while Uber was coming of age as a Silicon Valley success story, behind the scenes it was struggling to grow up. Co-founder Travis Kalanick resigned in 2017 when early investors pushed for his ouster, after a series of controversies including allegations of sexual harassment inside his company and the use of software to bypass regulators. Kalanick had long refused to hire an experienced chief financial officer or chief operating officer, both seen as key steps to moving the company toward the public markets.

Neither Kalanick nor his co-founder Garrett Camp will be invited to Friday’s bell ringing ceremony at the New York Stock Exchange, a person familiar with the matter said, though both are set to be multi-billionaires after the offering. Instead, standing center stage will be Chief Executive Officer Dara Khosrowshahi, who joined Uber from Expedia Group Inc. with the express mandate to take the company public. His compensation post-IPO will reward him handsomely if he brings Uber’s public valuation to $120 billion over a 90-day span.

Uber’s offering is set to be among the 10 largest U.S. IPOs of all time and the biggest on a U.S. exchange since Alibaba Group Holding Ltd.’s $25 billion global record holder in 2014, according to data compiled by Bloomberg. Other high-profile startups with plans to go public, or considering it, include Slack Technologies Inc., Postmates Inc., Peloton Interactive Inc. and Airbnb Inc.

With large institutional investors, plenty of debt and a history of releasing quarterly financials, Uber already has some of the characteristics of a public company. Soon, it will also experience the changing whims of Wall Street -- with the eyes of the next crop of IPO hopefuls firmly fixed on how it fares.

©2019 Bloomberg L.P.