Uber’s (UBER) disappointing initial public offering on Friday may be good reason for other tech companies going public this year to be concerned.
The ride-hailing company priced its shares at $45 per share, raising $8.1 billion and giving it a valuation of over $82 billion. It ended Friday 7.6% lower at $41.57 per share — a disappointing Wall Street debut for the most highly anticipated tech IPO of the year despite Uber’s relatively conservative approach with its IPO pricing.
Although at least 10 companies this year went public and opened lower than their IPO prices, Uber was the first company ever with…
a $4 billion-plus offering to do so, according to data provided by Dealogic.
Three experts Yahoo Finance spoke to said Uber’s lackluster start should give other tech companies set to IPO later this year reason to be more conservative when pricing their own forthcoming IPOs to better manage investor expectations. Many companies set to IPO have yet to become profitable.
Uber’s $45-a-share pricing was toward the low end of its stated range of $44 to $50. But experts we spoke to say that Uber should have set that range even lower. The company, which lost $1.8 billion in 2018, also should have provided investors concrete guidance as to when it expects to become profitable, according to the experts we spoke to.
Uber’s first day of trading served as a stark contrast to the video conference company Zoom, which was already profitable when it IPOed in late April and saw its stock surge nearly 72% during its own first day on Wall Street.
Pricing (even) more conservatively
Dan Ives, managing director of equity research for Wedbush securities, says Uber’s IPO raised a “yellow flag” for other tech companies poised to go public this year, including Airbnb, Instacart, Palantir, Postmates, and Slack. For those companies, Ives says Uber and Lyft (LYFT) can serve as case studies for company valuations. In Uber’s case, Ives suggests some investors still found Uber’s IPO valuation overpriced even though it was far less than the $120 billion valuation bandied around in late 2018.
Uber’s more conservative approach came after Lyft’s aggressive underwriters moved that company’s IPO price above the initial range in late March. Lyft like Uber, continues to hemorrhage money — the company lost $911.3 million in 2018 — and it has provided no clear guidance as to when it could turn a profit, other than to say 2019 would be Lyft’s “peak loss year.” Lyft stock is trading almost 35% lower than its all-time high in late March, plunging over…
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