- Goldman sold its entire stake in Uber Technologies late last year.
- The sale netted the investment bank a massive return, despite the stocks poor performance.
- The IPO system favors Wall Street insiders while leaving retail investors holding the bag.
One of the most anticipated IPOs of 2019, Uber Technologies Inc. (NYSE: UBER) turned out to be a dud. And recent reports reveal that Goldman Sachs, one of the firm’s key backers, unloaded its entire stake.
The sale occurred late last year after Uber’s IPO lockout period expired in early November.
Goldman’s move calls the entire IPO system into question. Uber was one of many failed IPOs in 2019 that saw their share-prices tumble soon after going public. These IPOS were still hugely profitable for Goldman and other Wall Street insiders who bought before shares went public.
Goldman was one of Uber’s Earliest Backers
Goldman’s relationship with Uber began in 2011. The investment bank purchased 10 million shares for $5 million, a $0.50 cost basis. Even back then, there were doubts about the quality of the investment.
Gary Cohn, Goldman’s former president stated:
I remember a lot of people thought this wasn’t a good investment — a short-lived, localized phenomenon.
The naysayers were wrong. Over the years, Goldman’s $5 million bet quickly grew to be worth upwards of $300 million. This is an over 5000% gain assuming the stake was sold at $26 per share – the stock’s opening price on November 6, 2019, when its lockup period expired.
But while Uber’s stock has performed well for those who bought before it went public, retail investors haven’t been so lucky.
IPOing at $45 per share, the ride-sharing stock quickly cratered to a 52 week low of $26 before posting a modest recovery to the mid $30 range. While Uber’s performance could be worse, it’s a far cry from the massive gains it has given Goldman and other early backers.
One of Many Failed IPOs
2019 was a rough year for high-profile IPOs.
What is the Future for Uber Technologies?
Despite losing one of its earliest backers, Uber believes it can turn its business around and become profitable by 2021. Shares have rebounded by around 30% off their lows. And the average analyst price target stands at around $44 — 30% above current prices.
While the firm faces significant challenges, it is still growing at a massive clip. This means investors can still make a return off their shares, even if they weren’t purchased at $0.50 each. Goldman always wins. But this time, the bagholders might break even.
Last modified: September 23, 2020 1:29 PM