The U.S. initial public offering market is facing its biggest week since 2015 with at least 15 deals expected to price, including Uber, the biggest IPO since Alibaba in 2014 and biggest U.S. company deal since Facebook in 2012.
Uber is expected to price its much anticipated offering on Thursday, just weeks after its smaller ride-sharing rival Lyft Inc. which has had a rocky start as a public company. Lyft’s shares have fallen 15% from their IPO price, given widespread concerns about the company’s ability to become profitable. Lyft will report its first earnings since going public on…
Tuesday after the bell and potential Uber investors will likely pay close attention.
To be sure, the two companies have different business models, with Lyft strongly focused on the U.S., while Uber has global ambitions that extend to food delivery, freight and even health care.
“Uber’s IPO tests the extent of Silicon Valley’s philosophy of growth at all costs,” according to Renaissance Capital, a provider of institutional research and IPO exchange-traded funds.
Lyft’s numbers are not the only event expected to influence the Uber IPO. Uber and Lyft drivers are planning a strike from 7 a.m. to 9 a.m., Wednesday to protest their low wages, their treatment as independent contractors and not employees, and the lack of regulation governing the new sector.
Drivers have repeatedly challenged the ride-sharing companies for refusing to deem them employees, which means they are responsible for maintenance of their own vehicles as well as gas and insurance, which greatly reduces the amount they can earn per hour.
Wedbush analyst Daniel Ives said take rates, the amount the companies deduct from fares, will remain the hot button issue for Uber and Lyft. Investors were surprised to discover Uber’s take rate of 22%, as disclosed in its IPO documents, which is well below expectations in the 30% range, said Ives.
“We do see added risk from Uber aiming to take greater share of the fare from drivers and expect that the more Uber pushes here, the more drivers will fight back and protest, increasing the likelihood of regulations (particularly at the state level in the U.S. and in Europe) of minimum wage guarantees,” Ives wrote in a Monday note.
Analysts have been comparing the two competitors ahead of the Uber deal, as MarketWatch’s Emily Bary reported. Wedbush’s Ygal Arounian recently declared his preference for Uber because its robust platform and logistics expertise reminded him of a younger Amazon.com Inc.
Ives also favors Uber over Lyft “at current levels.” D.A. Davidson’s Tom White remains on the sidelines for Uber due to the company’s deteriorating margins and slowing revenue growth, but he still rates Lyft shares a buy.
But both companies have big operating losses—Uber’s came to $2.3 billion for 2018—and there is no clear path to profitability in sight.
“With about $50 billion in gross bookings and $11 billion in revenue, Uber can only justify its $86 billion market cap by scaling its global offering further and then dialing up its take rate (roughly 20%),” said Renaissance. Investors might want to view it as a venture capital bet and think more about where it might be in 10 years time, assuming it hasn’t run out of cash by then, the company said in commentary.
And then the rest
Aside from Uber, the week will include deals from six biotech companies, a government contractor, an industrial engineering company, a Texas bank, a post office REIT, a Russian job site, a rugged phone maker and two blank check companies, according to Renaissance.
The second biggest deal on tap is…
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