In its second day of trading, Uber Technologies (NYSE:UBER) witnessed its shares drop to US$37.10 as of Monday (May 13), a 12 percent slump from its initial public offering (IPO) opening price.
Uber shares have now fallen over 17 percent lower than its IPO share price.
As the largest US IPO since Facebook (NASDAQ:FB) in 2012, Uber’s IPO fetched US$8.1 billion prior to opening on Friday (May 10). In little to no time, Uber has lost IPO investors US$655 million, according to Axios.
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Meanwhile, investors who bought in to Uber in 2016 have seen their investments lose 15 percent in value. Overall, Uber’s market capitalization sank to US$62 billion, according to the Financial Times, a far cry from the US$100 billion that the company was hoping to raise.
“Uber has grown to dominate the ride-hailing business by offering steep discounts. On Friday, Wall Street returned the favor,” reports the Financial Times.
In an email to Uber employees, CEO Dara Khosrowshahi referenced Facebook and Amazon’s (NASDAQ:AMZN) post-IPO price recoveries, “And look at how they have delivered since. Our road will be the same,” he said in the Financial Times. In 2012, Facebook issued its shares at US$38 each, which then took over a year for them to rise above its issue price.
A growing score of analysts are offering hesitant outlooks on the company. “We believe that recent price reductions for both Uber and Lyft (NASDAQ:LYFT) may be indicative of investor hesitance to invest in highly capital-intensive, deeply unprofitable and untested business models at this late stage of the economic cycle,” said Pitchbook analyst Asad Hussain in Reuters.
Nicholas Colas, co-founder of DataTrek Research, noted that there is a distinct separation between the retail perspective versus the private equity view of the recent Uber and Lyft valuations. According to Business Insider, Colas cited positive operating cash flow as an important variable. In 2018, Uber lost US$280 million in operating cash flow.
Uber’s primary competitor, Lyft also saw its shares drop over five percent on Monday to US$48.18. Its March IPO price was US$72. (Lyft’s early-stage investors have not seen their shares lose as much value as Uber. According to Axios, the highest price paid for Lyft shares among these investors was US$47.35).
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In an industry kept afloat by private-equity funding, investors and analysts are questioning Uber’s untested ride-hailing business model. Uber’s IPO share performance is among the worst in history among companies exceeding a US$1 billion valuation.
In its S-1 filing with the SEC on April 26, Uber reported its 2018 year-end financial results, which showed an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of negative US$1.875 billion. Meanwhile, the company’s revenue stood at US$11.27 billion, rising over 42 percent in 2018.
Market conditions didn’t help. Last week saw the S&P 500 experience its worst week to date in 2019 as trade spats between the US and China flared. On Monday, speculation surrounded whether China will retaliate to US tariffs by selling its US treasuries. Currently China holds US$1.1 trillion in US treasures, equivalent to 7 percent of total US national public debt.
In addition, tariffs between 20-to-25 percent were imposed on US goods by China on Monday, double the proposed 10 percent.
On Monday Uber shares opened at US$38.97 and closed at US$37.10. Shares of the company previously closed Friday (May 10) at US$41.62.
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Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.