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Uber’s $10 Billion IPO Will Succeed Where Lyft Catastrophically Failed

Last Updated September 23, 2020 12:38 PM
Ben Brown
Last Updated September 23, 2020 12:38 PM

Uber is poised to sell $10 billion in shares in the biggest initial public offering (IPO) of the year, according to Reuters .

After Lyft’s catastrophic debut on the stock market, Uber will learn from its rival’s mistakes. Uber’s IPO will be more cautious, more realistic, and ultimately more successful.

Uber: Learning From Lyft’s IPO Failure

Analysts initially praised Lyft’s bold decision to launch its IPO ahead of Uber. But the move to leapfrog its rival backfired.

Lyft shares hit the market at $72 but quickly fell below the launch price. Two weeks on and Lyft’s stock value sits 7 percent lower. Analysts lined up to slap bearish price targets on the stock, with Seaport Securities issuing an embarrassing $42 price target.

Legendary Carl Icahn sold his Lyft shares  at the IPO price and short sellers “went into overdrive. ” Wall Street’s opinion is that Lyft will now drift lower for the foreseeable future.

“We can expect Lyft to be a significant short in the market for a long time, especially with analysts already posting ‘sell’ recommendations less than a week after its IPO.” – Ihor Dusaniwsky.

Why Uber IPO Will Succeed Where Lyft Failed

By going first, Lyft has gifted Uber a huge advantage. Lyft was essentially the first soldier out of the trenches and was shot down; now Uber can learn from the mistakes.

First, Uber will have full access to Lyft’s financials. Part of the IPO process is revealing complete financial documents. Uber can fully scrutinize its own financials against Lyft and pitch its IPO and value accordingly.

Investors also have this luxury. When Lyft’s IPO launched, traders had no way to compare Lyft’s financials to Uber, since Uber has only ever released partial earnings.

Potential Uber investors will simply compare and scrutinize Uber’s figures with a direct rival. The result will be a more cautious, accurate, and realistic IPO price.

Uber’s Figures Are More Conservative

One of the crucial figures in Uber and Lyft’s financial reports is the contribution margin. It’s a measure of revenue generated minus the variable costs.

Uber’s calculations include a broader range of costs than Lyft . In other words, Uber is giving investors a more authentic and realistic overview of its business. 

Uber, Slack, Pinterest Revising Their IPOs Down

The Lyft IPO has acted as a warning sign for Uber and other major companies looking to IPO this year. Pinterest revised down its IPO expectations in the wake of Lyft’s failure.

Pinterest revised its value down to $9 billion, significantly lower than its previous private valuation of $12 billion. Uber is taking a similar approach, valuing itself between $80 – $100 billion, below previous hints of $120 billion.

Uber IPO – What We Know So Far

Uber is expected to sell $10 billion worth of shares when it makes its IPO files public tomorrow. It will make it one of the ten largest IPOs of all time, behind Facebook ($16 billion) and Alibaba ($25 billion).

Morgan Stanley is leading the round and will begin the traditional IPO “roadshow” next week to promote the stock to investors. 

The IPO will give us a first full look at Uber’s financials. The company made a $1.8 billion loss last year, and some investors are worried about slowing growth. Uber’s IPO files should address some of these concerns. 

Uber was last valued at $76 billion, but banks behind the IPO suggest it could now be as large as $120 billion.