Uber’s Colossal I.P.O. Flop May Be the Worst Ever on Wall Street
Despite pitching Wall Street on the promise of Amazon-like returns, investors appear to have discovered the many red flags in Uber’s prospectus. On Friday, the ride-hailing company closed its first day of trading below its I.P.O. price, representing billions of dollars in lost value. Uber continued to slide Monday, with shares sinking close to eight percent in the morning, or 15 percent below the stock’s initial price.
It just might be the biggest I.P.O. bust in history, CNN notes. No other company has been as well known, raised as much money, shown as much promise, and then performed so poorly out of the gate. Uber, which was once valued by private investors at as much as $120 billion, is currently worth about half that.
That represents a massive loss of money for a lot of people. As Axios reported on Sunday, I.P.O. investors lost $655 million on Friday alone, while the company’s investors from 2016 to 2018 saw a combined $2.27 billion go up in flames. “The bottom line: A whopping 81% of the $29.55 billion in equity that Uber has raised is underwater,” writes Felix Salmon. “Investors who bought Uber shares 3 years ago have lost 15% of their money, before fees. The opportunity cost is even greater: Investors in the S&P 500 have seen their money grow by 50% over the same period.”
Uber bulls point to a perfect storm of unfavorable market conditions that have contributed to the slump, including Donald Trump’s escalating trade war with China. In a memo sent to employees Monday, Khosrowshahi acknowledged that the stock “did not trade as well as we had hoped post-I.P.O.,” and that Monday had been another “tough day in the market,” but that employees should compare the company to Facebook and Amazon, which also had disappointing public debuts. “We will be judged long-term on our performance, and I welcome that,” Khosrowshahi wrote. “It’s all in our hands.”
Still, “the unvarnished truth is that these declines represent a fundamental disconnect between public and private valuations,” as Nicholas Colas, co-founder of DataTrek Research, wrote in a note to clients on Monday. The timing of Uber’s I.P.O. may have been unfortunate, but the company is also unprofitable and faces several well-capitalized competitors, as well as the risk of mounting labor costs and slowing growth. (“We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability,” the company warned in its I.P.O. filing last month.) And while some short-term profitability issues aren’t necessarily going to tank the stock, according to Colas, both Uber and Lyft are “dramatically short” when it comes to cash flow.
That’s bad news for Khosrowshahi, who will almost certainly not be collecting the $100 million bonus he was reportedly set to receive if Uber attained (and maintained) a $120 billion value. It’s bad news for Lyft, which is smaller, has not diversified its revenue stream (at least Uber has Uber Easts), and faces almost all of the same economic headwinds. And it’s potentially even worse news for a much-hyped tech I.P.O. boom that major venture capitalists has been counting on to exit their positions in other unprofitable companies. Sometimes the public markets will bail you out; sometimes the sucker left holding the bag is you.