What's going on?
Ride-hailing behemoth Uber peeled onto the stock market on Friday in one of the largest American initial public offerings ever – but investors immediately pumped the brakes, sending its shiny new share price down 8% (tweet this).
What does this mean?
Uber raised just over $8 billion by selling new shares to investors, valuing the company at around $80 billion (and pocketing its controversial founder a cool $5 billion surge). But that was well below the $120 billion investment banks initially suggested Uber was worth as they jostled for a starring role in the company’s coming of age.
Investors selling the stock were perhaps concerned that Uber, like its nemesis Lyft, may never turn a profit – and remains in the slow lane when it comes to replacing its drivers with cheaper self-driving taxis. And profit at Uber’s increasingly important food delivery service is more improbable than it actually getting your order right, according to some analysts…
Why should I care?
For markets: Sit down, be humble.
Uber’s initial value on Friday was seven times its 2018 revenue – lower than Lyft’s comparable eight times, despite the 30% drop in Lyft’s share price since its March listing. Uber likely hoped a lowball initial valuation would lead to a first-day price pop (à la Pinterest). But most major investment management firms (who’re responsible for a large chunk of demand for new shares) and the uber-wealthy who wanted to ride Uber’s stock already had a seat, thanks to the billions Uber raised selling private stakes in the company. Despite Uber’s shares reportedly selling out in just three days, demand on Friday was tepid, throwing its share price in reverse.
The bigger picture: Profit’s never promised tomorrow, today.
Uber drove home a $2 billion loss last year. And recent strikes around the world have revived questions about whether some of its two million freelance drivers should actually be treated as employees eligible for holiday pay and sick leave. This would push Uber’s costs higher – and profitability even further away.