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Uber went public Thursday night at $45 a share, which was near the low end of its expected range. The pricing gave the company an initial valuation of $75.5 billion — well below the $120 billion figure investment bankers were talking about last fall.
One of the most anticipated IPOs of 2019, Uber Technologies Inc. produced an unusual bad stock performance on Friday for a company of its size and they, for sure, didn’t expect it.
According to noted IPO watcher Jay Ritter of the University of Florida, on a dollar basis, investors who purchased the 180 million shares offered through the IPO at $45 per share collectively logged $618 million in paper losses Friday. That represents the worst dollar losses for a U.S. IPO going back through 1975, excluding foreign stock listing in the country via American Depository Shares.
“In terms of percentage losses, Uber’s dip doesn’t even scratch the surface of the worst IPOs. But the staggering valuation of the company makes it, in raw scale, “among the top 10 IPOs ever” including companies outside the U.S.”
Uber’s stock UBER, finished Friday trade off 7.6% at $41.57, giving it a valuation of $69.71 billion, according to FactSet data, after pricing its shares the day before its official public debut at $45.
Since 2000, only 18 companies valued at more than $1 billion and listing on American exchanges had opened below their IPO price. On average, tech stocks have jumped 41 percent on their first day of trading over the past 24 years, according to Dealogic.
Will the Autonomous Vehicles Help Uber Make Money?
According to some analysis, the company could be profitable by 2024. As former CEO Travis Kalanick said in 2014, “the reason that Uber could be expensive is you’re not just paying for the car, you’re paying for the other dude in the car who’s driving.”
On the other hand, Cliff Hodge, director of investments for Cornerstone Wealth says:
“The 800-pound gorilla in the room is autonomous [vehicles]. To be a long-term winner you are certainly going to have to be involved or partnered with a winner in the autonomous space. Once that’s up and running you are not going to need to source your biggest input costs which are drivers. If you can’t figure that out — you are not a leader in that space. Its hope is that they are going to make money one day, but there is no evidence that they are going to execute.”
The stock tumble of this ride-hailing giant immediately raised questions about investor appetite for other money-losing tech start-ups that are poised to list their shares. It also pointed to miscalculations by the Wall Street banks that had taken Uber public and signified a disappointment for Dara Khosrowshahi, the chief executive, who was hired partly to steer the company through a successful IPO. He said:
“I think we came public on a tough day, and a tough week. But this is an incredibly resilient company. There’s the old Ben Graham adage: ‘Short term, the stock market is a voting machine, and long term it’s a weighing machine.’ So we’re going to focus on building our mass, and building our scale. And I think the market will follow.”
The truth is that, even though some similar stocks had much better results after their IPO, that number usually declined in weeks after. If we take its rival Lyft for example, even though it had a first-day growth when it went public two months ago, it quickly fell below its IPO price amid questions about whether the deeply unprofitable company could make money.
That might be a considerable question if we know how disastrous first quarter results Lyft posted.
That we shouldn’t be so harsh on Uber says also the fact that Friday was pretty volatile for the stock market in whole. The S&P 500 index was on track for its fifth consecutive daily decline and its worst weekly performance of the year amid worsening trade tensions between the United States and China.
Uber’s IPO is a warning that companies that are growing at a fast pace, but have unprofitable results may not be accepted by investors as they have been in the past.
“This is going to cause some more caution in the I.P.O. market. Silicon Valley’s mantra of growth at all costs just does not fly on Wall Street, ” said Matt Kennedy, a market strategist at Renaissance Capital.