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Uber IPO Hype Machine Sputters as Stock Pricing Exposes True Valuation

Last Updated September 23, 2020 12:39 PM
Harsh Chauhan
Last Updated September 23, 2020 12:39 PM

By CCN.com: The Uber IPO is one of the most anticipated stock market debuts of the year as the ridesharing company plans to raise $10 billion, but the company’s amended  S-1 filing suggests that it won’t be anything more than a damp squib.

Uber expects its IPO to be priced in a range of $44 to $50 per share. The ridesharing specialist will be offering up to 180 million shares of its common stock. Those numbers translate into a market cap well below the $100 billion valuation it was reportedly looking for just weeks ago.

Uber Slices & Dices IPO Valuation Ahead of Stock Market Debut

uber ipo
Uber slashed its IPO target by as much as 30 percent from previously-reported valuations. | Source: Shutterstock

If Uber stock is priced at $50, the IPO will value the company at $90 billion, assuming all the common stock on offer is sold. The lower range of Uber’s IPO price will put its valuation near $79 billion.

That range is way below what was being thrown around earlier. Uber’s IPO would have made CEO Dara Khosrowshahi richer by at least $100 million if the company was valued at $120 billion, or if it was acquired for that amount.

This gives us a cue that Uber management probably thinks that the ridesharing company should be valued at $120 billion, otherwise it wouldn’t have used that number to decide Khosrowshahi’s incentive package. What’s more, according  to a Wall Street Journal report last year, the valuation proposals delivered by Morgan Stanley and Goldman Sachs to Uber valued the company at $120 billion.

The current IPO pricing range means that management is taking a conservative approach toward valuation. If Uber’s IPO is priced at $47 a share – the mid-point of the pricing range – it would value the company at just over $84 billion. That’s 16% lower than $100 billion and an eye-popping 30% lower than the $120 billion mark.

Last Minute IPO Discount Won’t Save Uber

Uber is wisely aiming for a conservative valuation, unlike Lyft, which foolishly priced its offering at a much higher level than its private valuation. Investors weren’t deceived, and following the initial wave of euphoria the IPO turned out to be a disaster.

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The Lyft IPO didn’t turn out to be a great buy, at least in the short-term. | Source: Yahoo Finance

Uber doesn’t want to commit that mistake, as the IPO pricing range shows us. But this doesn’t guarantee a successful stock market debut.

Uber had a $76 billion valuation in the private market in August last year, as reported by Reuters . But Uber’s IPO filing made it clear that its growth has fallen off a cliff. From 106 percent revenue growth in 2017, the company’s top line growth fell to 42 percent last year.

What’s more, Uber reported a first-quarter loss of around $1 billion on revenue of nearly $3 billion. This means that the company currently has a revenue run rate of $12 billion for 2019. Uber had delivered $11.3 billion in revenue last year, so its top-line growth could drop to the mid-single digits this year.

Under that bearish scenario, its losses could come in at $4 billion at the current pace, which would double last year’s loss. The rideshare company has already made it clear that it might not achieve profitability because of ballooning expenses, and investor enthusiasm could fade in the coming days.

So don’t be surprised if the Uber IPO disappoints, leaving investor portfolios with a flat tire.