The most anticipated initial public offering in years failed to live up to its hype.
Shares of Uber Technologies (ticker: UBER) ended its first day of trading on Friday at $41.60, down $3.40, or 7.6%, from its offering price of $45.
It was the worst first-day performance for a giant U.S. IPO by a wide margin, according to Jay Ritter, a University of Florida professor who specializes in IPOs. In the past 20 years, Facebook (FB), Visa (V), General Motors (GM), Kraft Foods, and AT&T Wireless Group all ended higher after their IPOs, although gains in Facebook and Kraft were slight, Ritter’s data show.
The Uber debut follows a disastrous public start for its smaller rival Lyft (LYFT), whose shares have fallen 29% since its March IPO. Barron’s was negative on both deals.
Uber is generating $1 billion of quarterly losses with profitability nowhere in sight. Among investors, there appears to be less willingness to buy into what Uber has called a “massive” global market opportunity in ride-hailing and newer business like its Uber Eats meal delivery.
At $42 a share, Uber is valued at $70 billion based on the post-IPO shares outstanding, and at a higher level, $76 billion, including restricted stock and options.
“Uber is a transportation company with some technology underneath,” says Mark Shurtleff, an independent research analyst and founder of Green Wheels Mobility Solutions. Uber amounts to an “urban car service,” he says. About a quarter of Uber’s gross bookings are from five cities: New York, San Francisco, London, Los Angeles, and São Paulo.
Compare Uber with other transportation companies. United Parcel Service (UPS), the subject of a bullish profile on page 15, has a market value that isn’t much more than Uber’s and yet is on track to earn $6.5 billion this year after taxes.
Delta Air Lines (DAL) has half of Uber’s market value and should earn more than $4 billion this year.
The looming threat for Uber is autonomous vehicles. Uber is struggling to catch up with the industry leader Waymo, a unit of Google parent Alphabet (GOOGL), which has already rolled out self-driving taxis in Phoenix. Paul Sagawa, an analyst with independent research firm SSR, recently wrote that Waymo could have robo-cab services in 10 to 15 major U.S. cities by 2025.
There will invariably be predictions that the Uber debut will chill the market for the pending IPOs of unicorns like Slack Technologies, WeWork, and Peloton Interactive. The Uber and Lyft debuts won’t help, but investors should judge the unicorns individually on their merits.
One highlighted by Barron’s, Pinterest (PINS), has an attractive ad-based business model and a sticky customer base, and is near profitability. Pinterest is up almost 50%, to $28, since its April 18 IPO.
The Uber and Lyft deals are refreshing because they show that investors still care about profitability and aren’t willing to buy the arguments of loss-plagued companies that they will be the next Amazon.com .