ride share

Uber is very close to going public and this will be the second ride-hailing company to do so. Wall Street Analysts are sending a clear message – this could be very big for Uber, but they shouldn’t be so quick to discredit Lyft. The IPO is drawing some pretty big name supporters like PayPal, but there’s a rising number of people saying that the company is coming in way over value. Uber is offering 180 million shares priced $44 to $50 each for the debut. With these numbers, they are going to top out at $91.5 billion. This would be the largest public offering since Alibaba, but Uber has a few problems including profitability, slowing growth and limited disclosures on key financial metrics. These things are bringing out the skeptics who are asking a lot of questions.

All of that said, Uber has already reduced its IPO pricing, as their initial numbers came in at $120 billion.  Lyft’s debut just over a month ago, might end up putting a damper on the Uber share prices, as those numbers continue to sink.  The stock is currently trading at $59.8 as of Tuesday, which is well below their IPO price of $72.

So why is it ok for Lyft to have such high IPO prices and not Uber?  Uber’s valuation is considered too high as their growth slowed “drastically” over the past year, according to Shyam Patil, a Tech Analyst at Susquehanna Financial Group. Uber’s bookings growth slowed from the high 50% in the first quarter of 2018 to mid-30% in the first quarter of 2019.  In addition, adjusted revenue growth also decelerated from 85% to 14% over that same time period.  Uber is also reporting an operating loss of $3 billion on $11.3 billion of revenue last year.

Even though Lyft is smaller, they have nearly identical products and are the two dominant players in this particular space.  Which makes competition pretty fierce.  That said, Uber is still the number one player, but Lyft is the one who is growing, which is eating into Uber’s market share.   While monopolies aren’t advantageous, it makes you wonder how much room there is for competition in these types of industries.

All of that said, the appetite for this IPO is gaining ground.  Not to mention, the Lyft IPO was also oversubscribed, so maybe this is part of the strategy?  While I don’t know that it’s necessarily a good strategy, isn’t this what we do in life anyway?  We over-sell things.  Or at least we try to.  I mean, in my real estate experience, I listed my houses way over what my real estate agents said I could get for the assets.  In the end, I walked away with a lot more money than I would have, had I listened to those folks.  With that in mind, is it a matter of over-valuing the asset with the hopes that they will come ahead with something?  Which is always better than nothing.

Not to mention, we’re always going to think that our “thing” is worth more than someone else believes.  I guess the big concern is the fact that Uber is so much bigger than Lyft, but, like with anything in life – only time will tell.