Uber’s initial public offering prices tonight, and its stock will begin trading tomorrow morning on the New York Stock Exchange with all due pomp and circumstance.
In the days and weeks ahead you can expect to hear Wall Street praising Uber’s stock to the heavens and ignoring some of the more discordant notes to its story, such as the fact that Uber’s initial offering price might actually be lower than the $48.77 that institutional investors paid per share more than three years ago, as Bloomberg columnist Matt Levine pointed out Thursday morning.
Investment bankers are full of nice things to say about Uber—they’re even comparing it to a young Amazon—maybe because they believe it’s a terrific growth story and enjoy using the service after a few too many after-work beverages. But don’t forget that Wall Street is also saying nice things because Uber has paid just about everyone to say those things.
The company has enlisted a whopping 29 banks to market its IPO. I don’t know if that’s a record, but it probably is. At any rate, it’s seven more banks than Lyft hired for its IPO six weeks ago. Alibaba enlisted 19 banks for its 2014 IPO, Facebook 11 in 2012 and Google 10 when it went public 15 years ago. Clearly we have a case of investment-banker inflation on our hands.
Bankers get paid fat fees for taking companies public. A 7% commission is the standard rate, though Uber probably negotiated a lower fee because its IPO is so big. The underwriters’ fee includes services such as bank traders snapping Uber shares after the IPO in case lots of sellers materialize, plus fawning reports from research analysts with their inevitable “buy” ratings.
It’s all part of the show, so really there’s no reason to pay any attention when analysts from Morgan Stanley, Goldman Sachs, BofA Merrill Lynch or the 26 other banks involved in Uber’s IPO start describing what a great investment opportunity it is. It might be worth listening instead to firms that weren’t involved in this megadeal, like Credit Suisse, Jefferies, JPMorgan and UBS.