Uber Technologies Inc. plans to set its initial public offering valuation somewhere between $80 billion and $92 billion. The assessment of the world’s biggest ride-hailing service company, however, fails to reach expectations of startup insiders and experts’ prediction by about one-third of the amount given.
Uber’s regulatory filing reveals that the valuation for the company is way below the investment bankers’ $120 billion. With the $80 to $92 million amount set, Uber pulled itself closer to the private fundraising valuation of $76 billion last year.
Uber’s decision not to reach for the $120-billion mark stems from the poor stock performance of Lyft, a smaller ride-hailing service rival. After launching its IPO in March, Lyft witnessed its shares trading go down 20 percent from its original IPO price despite expectations of profitability from marketing experts and its investors.
Lyft took a gamble on its profitability by completing an IPO valuation of $24.3 billion, which is 11 times more than its revenue for the whole of last year. Uber, meanwhile, opened its estimate at about eight times its revenue.
Asad Hussain, an analyst for PitchBook, believes that investors’ reluctance to place their money in untested business models are giving them second thoughts on investing in Uber and Lyft. Hussain also adds that the ride-hailing companies are intense in capitals and may be unprofitable in the long run, providing further doubt for investors.
Uber plans to sell $180 million shares in hopes of raising nine billion to add to the 27 million shares purchased by investors for about $1.35 billion. For its current IPO, Uber plans to make it $44 to $50 per share. Thomson Reuters News reports that Uber will receive a combined value of over $10 billion if it manages to sell each of its shares to willing investors.
Although its lower amount compared to expectations, Uber’s $90 billion IPO will make it the largest in the US since 2014, following Chinese company Alibaba Group Holding Ltd. Uber starts its investor roadshow ahead of the IPO filing, where it plans to attract investors to buy shares from the company.
The Uber road show began in New York last Friday. Uber executives will also be hosting a presentation for investors in London, Boston, the Midwest, San Francisco, and will return to New York for another display. People working closely with the ride-hailing company believe that Uber predicts that it will be able to begin trading after pricing the IPO on May 9. Uber plans to sell on the New York Stock Exchange.
Uber co-founders Garrett Camp and Travis Kalanick have 6.86 million shares from the company in their pockets. When the IPO prices get sold for $92 billion, they may be able to reach $343 million for themselves.
Investors will be firing questions of profitability, future allocations, and business model classes to Uber during the roadshow. The ride-hailing company filed a net loss of around $1 billion on its three billion sales figure during the first quarter of this year. Framlington Global Equities head Mark Hargraves states that Uber remains a questionable investment when it comes to long-term profitability.
Uber reveals that PayPal agreed to an investment of about $500 million worth of stock for the price which the IPO will be settling. The international payments system company is open to discuss a partnership with Uber in terms of future payment methods. NBCUniversal also made the same commitment with Snap Inc., owner of Snapchat, last 2017.
Uber’s Careful Valuation
Zoom Video Communications and Pinterest Inc. witnessed a better performance in IPO prices compared to Lyft. Uber decided to move away from experts’ expectations and consider a conservative valuation.
Despite the low valuation on IPO, Uber remains confident in winning the investors over as it remains the most significant player in the business at which it operates all over the world. Unlike its many competitors, Uber has a food delivery service in Uber Eats, which generated revenue of over $1.5 billion. Chief Executive Dara Khosrowshahi plans to convince investors to take a risk with the ride-hailing company after it managed to overpower controversies and scandals over the past year. It also overcame a significant data breach and illicit software use on bribery.