Inside Uber’s IPO: The 2008 Pitch That Birthed An $80 Billion Startup
Uber’s founders in 2008 thought the best-case scenario for what they were calling UberCab was to hit $1 billion in revenue. Their “more realistic success scenario”? Reach 5% of the top U.S. cities and generate $20 million in profits.
Talk about being short-sighted. Even the super-sized ambitions of founder Travis Kalanick didn’t envision what would transpire: $11 billion in revenue, 100% of the top U.S. cities (30% of the world’s countries), and an IPO that values the ride-hailing company at $82 billion — nearly as much as the market capitalization of Ford and General Motors combined.
On Friday, Uber starts trading on the New York Stock Exchange after raising $8.1 billion in the biggest U.S. IPO in five years. Over 91 million people use it monthly.
Expectations exceeded when it comes to scale, but vows made in Uber cofounder Garrett Camp’s original pitch to investors that it was “profitable by design” look laughable in hindsight. It booked $3 billion in operating losses last year; some investors doubt it will ever make a dime. Another thing the founders couldn’t predict: how Kalanick, the public face of Uber’s hard-charging ways, would be sidelined during the IPO hoopla. After a string of scandals led to his ouster, replacement Dara Khosrowshahi made the final pitch to investors.
Forbes took a look at what else Uber’s cofounders got wrong and got eerily right (think the near death-blow to taxis), when they wooed investors 11 years ago.
UberCab dropped cab from its name in 2010—right around the time it received its first cease-and-desist letter from the city of San Francisco. It’s also moved way beyond car service, offering bikes and scooters and the idea, if not the reality, of air taxis.Uber had cabs in its crosshairs and it decimated the industry as a result. Taxis would fight back, sometimes by protest, but by November 2017, Uber drivers were performing more monthly pickups than green and yellow taxi drivers in New York City.The growing popularity also forced the price of taxi medallions to plunge. Once worth an average of half a million dollars, some medallions reportedly went up for auction in 2018 for as low as $160,000.Other taglines used: “Make transportation as reliable as running water.” By the time of its IPO, Uber had come up with a snazzier statement: “Igniting opportunity by setting the world in motion.” Those better fit with its vision of moving beyond San Francisco and New York City. It’s now in over 700 cities.It’s still a 1-click-car service, but Uber dropped the idea of a membership model. As for photos to match client and driver, Uber added further identification, like car descriptions and license plate numbers, so riders would know their pickup was legit. The new features still wouldn’t go far enough (see Slide 11).Getting a ride in five minutes is still true. Uber’s S-1 filing shows its average wait time globally in 2018 was five minutes. It’s moved way past luxury: Uber first introduced its lower cost UberX ride in 2012, its first step in moving past being a black car-only service.Far from it. Uber doesn’t have an easy path to profitability, if there is one at all. (Public market investors will have to see how long they tolerate it.) In order to power its international expansion, it did have to ditch its pre-paid cashless system and it now accepts cash in a lot of its foreign markets. Today, cash payments make up 13% of its global bookings.Can you spot the original UberCab app? You used to be able to hail an Uber via text too. Now that’s not really an option, but Uber for Business users, like hotels, can dispatch Ubers and text the pick-up details to customers, no app needed.The Google Maps deal is a pricey one: Uber spent $58 million the last two years on Maps. And while labeling locations was part of the early vision, Uber only added saved places, other than home and work, to its app in 2017.WiFi in cars? We wish!Uber did get the rideshare part right, though. Uber was already envisioning what would become UberPool, but its carpooling option didn’t launch until 2014. Kids, too, are a problem—unless they’re accompanied by an adult. Uber doesn’t allow minors under 18, but there’s a whole crop of “Uber for kids” startups taking its place.Safer? That hasn’t been proven. Uber got in serious trouble over misleading claims on safety. In 2016, it settled a class action lawsuit over making statements like how its background checks were “industry leading.” As part of the deal, it had to rename its “safe ride fee” to a “booking” fee. After repeated reports of assaults, kidnappings and murders, Uber started rolling out a panic button, adding a direct line to 911 in 2018 for U.S. customers.Uber actually called environmental policy a risk in its IPO, not a benefit: “”[B]ecause a substantial portion of our business involves vehicles that run on fossil fuels, laws, regulations, or governmental actions seeking to curb air pollution or emissions may impact our business.” It’s trying to work with cities to introduce all-electric vehicles and even charges a clean air fee in cities like London. But given that more cars on the road means more emissions, it’s hard to say Uber is unequivocally good for the planet. Lyft has at least pledged to buy carbon offsets (Uber didn’t).These don’t look like your average Uber anymore. While Camp wanted to buy a fleet, it was Kalanick who pushed back and thought it would be a better idea to let existing car services onto Uber. Soon, it would be anyone with a car—not just the limo services.… and 62 other countries around the world after that. Uber expanded quickly. After launching in New York in May 2011, it would expand throughout the U.S. and to Paris by the end of the year.The smartphone powered Uber, but sometimes a little too much. Phones would help Uber track its users from what was known as “God View”, a tool that was curtailed once it became publicly known. The reputation tracking would also become an issue: driver ratings are core and controversial to the app. Fall too low and it would cost drivers their jobs.Where is surge pricing? That didn’t come until 2012. Uber needed another way to balance supply and demand, so it started charging riders more during busy times to incentivize more drivers to log in.Uber’s biggest underestimation would be thinking its competition was just the taxi and limousine market in the U.S., a $4.2 billion opportunity. That turned out to be way too small. Instead, Uber’s revised total addressable market is all vehicle and public transport trips, according to its S-1 filing. That’s now a $5.7 trillion market size.Airport pick-ups and drop-offs would be a key market for Uber, something the founders spotted early. In 2018, 15% of Uber’s bookings came from trips that started or ended at an airport.Uber didn’t just cover 50% of the U.S. market, it covered 100% of the cities on its initial target list. International expansion wasn’t even on its radar in 2008, but it moved quickly to go global. Rival Lyft remained U.S. and Canada-focused instead.The worst-case scenario deterred a lot of investors from putting a check in early. After all, what venture capitalist would want to invest in a town-car business catering just to the elite? Instead, Uber blew past its realistic success and best-case scenarios quickly. Uber hit $1 billion in revenue by 2015, and generated 10x that, around $11.3 billion, in 2018. Its major miss of the last decade was in delivering profits. It may not be realistic ever!Even the smartphone market share has been disrupted since 2008 when Blackberry, Palm and Nokia were global favorites.If you’re in San Francisco, we’d forgive you for thinking that Uber had stocked the city full of Prius cars. But Uber completely abandoned its plan to buy cars. Instead, it let drivers use their own and even offered a leasing program, albeit one that was a bit predatory. It later sold off that business to a SoftBank-backed company instead.Uber became far more than a “ubiquitous ‘premium’ cab service”. That just shows how short-sighted its initial vision, at least on paper, would be. At least it didn’t go with the Cabs2.0 moniker. Today, Uber likes to refer to the new CEO, Dara Khosrowshahi’s tenure, as Uber 2.0, an attempted reset at the company culture following a series of scandals and investigations in 2017.Delivery looks like an afterthought in Uber’s first pitch deck, but it became its own “best-case scenario” business. UberEats did nearly $1.5 billion in revenue in 2018, and 40% of its customers had never taken an Uber ride before. Food delivery just in the U.S. is expected to become a $24 billion business by 2023.
A few million? Uber would go on to raise over $20 billion in a mix of equity and debt, including from investors such as SoftBank. Its IPO alone generated over $8 billion for the company. Profitability turned out to be a pipe dream, at least for now, but the rest of Uber’s business grew far beyond its beginnings.