This is the big one

Uber’s initial public offering will be one of the largest in tech-industry history. It’s also the biggest test yet of investors’ appetite for money-losing unicorns on the public market and, as Mike Isaac of the NYT points out, part of the company’s attempts to demonstrate that it has evolved past its tech-bro culture.

The going has been good for I.P.O.s this year. Zoom Video Communications has more than doubled in value since its I.P.O., PagerDuty is up 90 percent and Pinterest has gained nearly 60 percent.

But there’s still the Lyft effect to worry about. Shares in Uber’s rival are down nearly 20 percent since its I.P.O. In that case, investors’ primary concern is whether a company that lost about $1 billion last year can become profitable.

That has weighed on Uber’s offering, with its predicted valuation steadily decreasing:

• In the fall, investment bankers floated a valuation of $120 billion.

• Last month, Uber suggested to some investors that its stock sale might value it at up to $100 billion.

• Last week, Uber set a price range that would value it at up to $91 billion.

The pricing could still change depending how investors greet Uber’s roadshow. And even at $91 billion, Uber would be among the three most valuable firms ever to debut on a U.S. exchange, according to Dealogic.

The plan for the offering

Uber will list its shares on the New York Stock Exchange under the symbol “UBER.”

It expects to be valued at $80 billion to $91 billion, accounting for stock options and restricted stock. That’s above the $76 billion valuation that private investors gave the company in August, and dwarfs its rival Lyft, which went public last month at a valuation of more than $24 billion.

It plans to sell 207 million shares, including the additional shares allotted to the underwriters, at a price between $44 and $50 a piece. At the top of that range, the company would raise $9 billion.

Only two other U.S. I.P.O.s have ever been more valuable. Alibaba raised $25 billion in 2014 at a value of $167 billion, according to Dealogic. And Facebook sold $16 billion of stock in 2012, valuing the company at $104 billion.

Uber has set aside some shares. It has 3 percent available for its drivers to purchase at the I.P.O. price. And PayPal will buy $500 million worth in a private placement at the I.P.O. price after the closing of the offering this week.

Morgan Stanley and Goldman Sachs are leading the offering.

One share, one vote

Uber will buck a growing in Silicon Valley trend and have a single class of stock that treats all shareholders equally.

Dual-class structures have become common because they let founders and early investors keep control of the company.

• Facebook, Google and Snap famously all went public with a dual-class structure.

• Lyft, Zoom and Pinterest have all done the same this year.

But Uber is no longer run by its founders, and its top executives aren’t replete with stock.

• After the Uber goes public, its executives, directors and early investors will own just over 50 percent of the shares outstanding.

Uber, like Lyft, is deeply unprofitable and isn’t expected to make a profit anytime soon.

Ride-hailing is inherently expensive because companies spend heavily on subsidies to attract riders and drivers. Uber is burning cash to fight fierce rivals both in the U.S. and abroad.

The company is also investing heavily in diversification, such as food delivery, scooters, freight and autonomous driving.

Revenue growth has slowed. In 2018, its revenue rose 42 percent to $11.3 billion from a year earlier. But revenue in 2017 had more than doubled from 2016.

And spending continues to rise, reaching $14.3 billion last year, up 19 percent from 2017.

The company lost up to $1.1 billion in the first three months of this year.

• Last year, Uber made a profit of $997 million, but largely by selling parts of its business in places like Southeast Asia and Russia.

• Excluding those gains, plus other items, Uber lost $1.8 billion for the year. In 2017, its net loss totaled $4 billion.

Its ride-hailing business is expansive, but it’s also beginning to plateau.

• It now operates in more than 63 countries and 700 cities around the world, completing more than 15 million trips a day.

• Uber had 91 million monthly users in 2018, up 34 percent from a year earlier. Growth had slowed, down from 51 percent in 2017.

One bright spot: Uber Eats, whose revenue nearly tripled to $1.5 billion in 2018, from $587 million a year earlier.

Riding the wave of mobile-technology innovation that followed Apple’s introduction of the iPhone in 2007, Garrett Camp and Travis Kalanick founded Uber in 2009.

• Mr. Camp was inspired by the difficulties he faced when hailing a taxi in San Francisco. He eventually tapped his friend Mr. Kalanick to run the company.

• The service, initially called UberCab, began as an on-demand black car service for wealthy clients.

• The company expanded rapidly, pushing into numerous cities with little regard for local laws, which caused tensions with taxi companies, lawmakers and regulators.

Uber stumbled badly in 2017 when a series of legal and ethical scandals resulted in a boardroom coup and Mr. Kalanick’s ouster.

• It continues to deal with investigations by the Justice Department and foreign government agencies over its past business practices.

But Dara Khosrowshahi has made big changes since he took over as C.E.O. in 2017.

• A managerial and cultural shake-up has attempted to improve Uber’s tattered image.

• Mr. Khosrowshahi pared back unprofitable parts of the company.

• And the company has expanded beyond ride-hailing into scooters, bike-sharing, food delivery and freight, while also investing in future technologies like autonomous cars.

In a word: lots.

The risk factor section in an I.P.O. prospectus always serves as sort of a warning label for investors, but Uber’s is particularly comprehensive — totaling 35,000 words. (Breakingviews’s Robert Cyran points out that Microsoft took just 1,100 words to explains the risks facing its businesses when it went public in 1986.)

Here’s what keeps Uber up at night:

Employees. Uber labels its drivers contractors, not employees, which exempts it from paying a minimum wage or social security contributions, among other things. More than 60,000 drivers have filed or plan to file for arbitration to change that, a shift that could cost it billions of dollars.

Autonomous cars. Robo-taxis are essential to Uber’s profitability: They’ll allow vehicles to offer rides 24-7 without human drivers sharing the takings. But if competitors like Waymo crack the technology first, Uber could suffer.

Regulation. It’s 2019, and the authorities are after tech companies — whether through outright blocks to Uber’s taxi service or privacy regulations that crimp its ability to innovate.

Itself. For several years, Uber was perhaps tech’s biggest villain — among other things, it ignored regulation, had rampant workplace discrimination, and was accused of stealing intellectual property. It still worries that its cultural and leadership fixes might not solve its lingering P.R. problems.

And, um, restaurants and delivery companies? Uber’s aggressive diversification means rivals are everywhere. Restaurants steal customers from its food delivery service, and companies like DHL compete with its freight service. But you can add ride-hailing companies, bike and scooter businesses, delivery services, autonomous vehicle makers and more to its list of competitors.

The biggest winners from Uber’s public offering will be its founders and early investors, who own large chunks of stock:

• Mr. Kalanick, whose stake will be worth as much as $5.6 billion at the high end of the range. He is selling $186 million worth of stock in the offering. (He sold nearly a third of his shares to SoftBank for about $1.4 billion just over a year ago.)

 Mr. Camp, Uber’s other co-founder, owns $4.1 billion of Uber shares and is selling $156 million of his stake.

• SoftBank, Uber’s biggest shareholder, owns a 16.3 percent stake in the company. At $50 per share, that is worth $11.1 billion. SoftBank is selling $272 million of shares in the I.P.O.

• Benchmark is Uber’s second largest investor. Its stake could be valued at as much as $7.2 billion. (It sold about $900 million of stock, or close to 15 percent of its holdings, to SoftBank at the same time as Mr. Kalanick did.)

• Saudi Arabia’s Public Investment Fund has a holding that could be valued at $3.6 billion, and Alphabet has a stake worth roughly the same.

Uber’s transformation from a founder-led, private company into a publicly traded company started in 2017 after Mr. Kalanick stepped down as C.E.O. That means that its top leadership is all relatively new, and owns little of the company. (Mr. Khosrowshahi’s stake could be worth just $9.8 million.)

So Uber offered I.P.O.-related bonuses to incentivize its senior executives. The company’s offering prospectus explained that Mr. Khosrowshahi and at least four other executives stood to receive equity awards that would have vested if the I.P.O. valued Uber at $120 billion, including restricted stock and stock options, and maintained that valuation for 90 days.

That now seems unlikely. But don’t feel too sorry for them:

• Mr. Khosrowshahi received about $45.3 million in compensation last year.

• Barney Harford, Uber’s chief operating officer, had a pay package of $47.3 million.

• Nelson Chai, who joined Uber in September as its chief financial officer, received compensation of $28 million.

“Uber is a growth business whose largest business stopped growing, at least for now,” Shira Ovide of Bloomberg Opinion writes, referring to the fact that the total value of rides it provided in the first quarter of 2019 actually fell by 1 percent compared to the previous quarter. “Now that Uber’s main business has reached a plateau, investors in Uber’s I.P.O. will essentially be betting that the company can find more markets to conquer.”

“The road to profitability and lasting shareholder value is hard to discern,” Richard Beales of Breakingviews writes. “It is still splashing out on fast-growing Uber Eats and the newer Uber Freight trucking business, to name a couple of areas. But it’s not obvious the heavy investment will ever pay off.”

“In some markets, Uber is starting in a hole, paying more to drivers to complete a trip than the customer pays for the ride,” Lauren Silva Laughlin of the WSJ notes. Those payments are designed to incentivize workers to join its platform, and should disappear as Uber becomes dominant. But “these fees are growing not shrinking,” notes Ms. Laughlin.

Uber’s I.P.O. prospectus “left many serious professional investors wondering why a company that loses $3 billion annually” could be worth more than $90 billion, Rett Wallace, the co-founder and chief executive of Triton Research, wrote in the FT. “The information that financial analysts would need simply wasn’t in there,” he continued, adding that a “solicitation for so much money with so little information is an outrage.”

An I.P.O. prospectus often features a letter from the company’s leaders, laying out their high-minded vision for the company and how it will change the world. Mr. Khosrowshahi didn’t pass over the opportunity:

“What began as ‘tap a button and get a ride’ has become something much more profound: ridesharing and car-pooling; meal delivery and freight; electric bikes and scooters; and self-driving cars and urban aviation.”

But he did acknowledge Uber’s stumbles:

“Of course in getting from point A to point B we didn’t get everything right. Some of the attributes that made Uber a wildly successful start-up — a fierce sense of entrepreneurialism, our willingness to take risks that others might not, and that famous Uber Hustle — led to missteps along the way. In fact, when I joined Uber as CEO, many people asked me why I would leave the stability of my previous job for one that anything but. My answer was simple: Uber is a once-in-a-generation company, and the opportunity ahead of it is enormous.”

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