The first ride-hailing company in the world, Uber, is late getting to the IPO starting gate.
That means its stock, when it comes to market, is likely going to be a dud.
At one time, Uber could have expected a spectacular coming out party.
By first letting Lyft beat it out of the gate, and now ZOOM and Pinterest, investors are going to focus on what’s wrong with Uber – and not what’s right with its global business.
Consider Lyft a Foreshadowing
A “unicorn” is a private company with a valuation of at least $1 billion. And the first mistake Uber made playing the unicorn game was becoming a multi-horned unicorn worth tens of billions of dollars and not going public years ago.
Uber can probably blame private investors in the company for that.
The more private money that gets invested in a company at a per-share value higher than previous investors paid to fund the company, the more the company is worth on paper and the richer earlier investors look on paper.
Late-stage investors usually pay the most to get into a company, but they expect the company to go public sooner – and hopefully at a much higher valuation than what they paid.
They’re in for a shorter period and get relatively quick access to the exit doors if they want to cash out.
Or, if the IPO goes well and the stock price stays high, they get to book paper profits and hedge their holdings with derivatives.
But waiting to go public, as in Uber’s case, can make it hard on the stock at its debut and afterwards.
With a lineup of tech companies beating you to market, everyone gets to see how hot the market is for IPOs, what investors are really looking for, and, in Uber’s case, what your principal competitor’s stock does when it beats you to market.
Lyft Inc. (NasdaqGS:LYFT) waited to go public until after it was a big unicorn, too, and it paid a heavy price being in the spotlight.
Investors were anxious enough over LYFT’s IPO because it was the first unicorn to market this year, and its only competitor, Uber, was coming to market on its heels.
It was all good news for LYFT coming to market – until it came to market.
LYFT’s roadshow was met with lots of positive reviews, and LYFT’s bankers raised the IPO range higher and higher, until they settled on $70- $72.
The night before the IPO, the stock was priced at $72.
On IPO day, after the attendant late opening because of a rush of orders, which in LYFT’s case meant there were more buyers trying to get in, the stock opened at $88.60, which was 23% pop higher.
That didn’t last.
In less than a couple of weeks, LYFT traded down to $55.55. That’s down 37% from its high opening print and down 22.8% from the IPO price.
The reason LYFT got hit was it was hyped up.
Reality being what it is, though sometimes late to forefront, LYFT is losing money. It lost $933 million last year.
And its sales are slowing.
Investors realized the stock wasn’t “hot” and the company wasn’t either.
That’s really bad news for Uber, because Uber’s losing a lot more than Lyft and its sales are slowing faster.
But, we’re not even there yet.
Uber’s Coming – Get Out of the Way
The facts are the facts.
ZOOM, the video conferencing company, had net income (that means a profit) of $7.6 million on revenue of $330.5 million in 2018. Sales at ZOOM grew 118% last year.
It was bound to come out of the gate with some positive backing.
Bankers kept raising ZOOM’s projected IPO range, eventually calling for it to be $32-$35.
The stock was priced the night before at $36, and opened on its first print at $65 for a whopping 80% gain over the IPO price.
PINS, on the other hand, got its expected range up to $15-$17, and for good measure – which means the bankers tried to hype demand for the stock, got IPO priced the night before at $19.
But, PINS, which has sales of $755 million in its latest fiscal year, had a net loss of $62.97 million. And its sales grew at only 60% last year.
PINS stock IPO’d at $19, saw its first print at $23.75, for a 25% pop, and proceeded to float around there.
That’s the difference between a company coming to market in what’s supposed to be a crowded field this year being profitable or not: having accelerating growth or slowing growth.
We’ll see how the two trade this week when investors get to digest what they’ve really bought into.
PINS could end up looking like Lyft by the end of next week.
ZOOM could go either way, but stands a much better chance of holding up longer.
Uber won’t be so lucky.
When Uber unicorn was the “it” unicorn, the cool company, growing revenues in leaps and bounds, no matter how much it was losing, investors wanted a piece of the future they saw in it.
Not so much anymore.
Uber’s had too many troubles to list here. Besides its “reputational” and management problems, it’s constantly facing off with its drivers, who Uber wants to eliminate with self-driving cars that it wants to lead the market with.
The company’s revenues are slowing and it lost over $3 billion last year.
Investors are questioning why they’re spreading themselves so thinly so quickly, moving into “New Mobility” and “Uber Freight.”
They’ll be coming to market soon, especially if the markets keep rallying, lifting all boats.
But, when they come, I’m getting out of the way.
Not just of the IPO’s way, of the entire market.
Uber’s coming out could be the wake-up call that focuses investors on lofty prices and unrealistic expectations.
P.S. – It’s clear already that 2019’s going to be all about IPOs – good ones and bad ones. It’s just a matter of figuring out which is which. But, it’s not a secret that IPOs, when they’re good, can make you a great chunk of change. In fact, Money Map created a special website for our readers dedicated solely to IPO investing in 2019. It covers what an IPO is, what makes IPOs successful, the four IPOs set to make investors as much as $12 billion in the next 27 days, and more. But the website’s gates are closing soon, so I encourage you to set aside five minutes to check it out. Click here to learn more.