The long-awaited IPO of Uber, the brash ride-hailing giant that has changed transportation around the world, turned out to be a dud Friday.
Despite its efforts to tamp down expectations, the San Francisco company closed at $41.57, down 7.6 percent from its IPO price, valuing it at $76 billion. That is the worst first-day showing of the five tech unicorns that have gone public so far this year and a long way from the $120 billion valuation that was estimated by the company’s lead underwriters last year.
Still, Uber’s IPO was the biggest of the year so far. It ranks among the top public debuts by an American tech company, second only to Facebook’s IPO, which raised $16 billion and valued that company at $81 billion in 2012. Uber’s also is the biggest U.S. IPO since Chinese internet giant Alibaba went public on the NYSE in 2014.
The San Francisco company priced its shares Thursday at $45, at the low end of its targeted range of $45 to $50, amid questions about whether it can ever turn a profit. Uber, which had an adjusted loss of $1.85 billion last year, started off Friday in disappointing fashion, with its shares opening at $42, below the IPO price.
While some analysts blamed a volatile stock market for Uber’s poor showing on its first day of trading, others cited concerns about the company’s business that may affect other tech unicorns — companies valued at $1 billion or higher — that are expected to go public this year, including Slack, Postmates, Airbnb and Palantir.
“I think the market is clearly signaling it’s placing a great premium on profitability or at least a clear/demonstrable path to it,” said Tom White, analyst for D.A. Davidson. “Investors are prioritizing clearly strong business models and unit economics over sheer growth and market share capture.”
A big factor that weighed on Uber when it priced its shares was the stock market performance of its main rival, Lyft, the other money-losing rides app based in San Francisco.
Lyft saw an initial pop in its share price when it went public in March, but its stock dropped quickly and is down nearly 30 percent since its debut. Lyft shares closed down 7.4 percent Friday.
Besides their massive losses, another thing the two companies have in common is disgruntled drivers. This week, those drivers converged in front of Uber’s headquarters and in cities around the world, protesting their pay and working conditions.
“As this week’s driver strike showed, Uber’s challenges are growing: Both its drivers and local and state governments are increasingly willing to take action in order to address the low pay and other costs Uber’s business model imposes on them,” said Richard Clayton, research director for union pension-fund adviser CtW Investment Group, on Friday.
Uber Chief Executive Dara Khosrowshahi — brought in two years ago to replace ousted CEO and co-founder Travis Kalanick and turn the company around after months of turmoil — rang the opening bell at the New York Stock Exchange. Kalanick reportedly had wanted to be part of the bell-ringing but instead was present on the trading floor Friday morning. He remains on the board of Uber, and his 8.6 percent stake is now worth $4.8 billion.
Kalanick left the company at the request of its board in June 2017 after scandals galore for Uber, which flouted regulations and became known as a company that didn’t ask for permission, just forgiveness. It ignored driver licensing and insurance rules and reportedly used a tool to evade law enforcement.
Just four months before Kalanick’s departure, former company engineer Susan Fowler published an essay in which she accused Uber of doing nothing in response to her allegation of sexual harassment. That was followed by other news reports and public accusations of harassment, racism, sexism and homophobia at the company. Also, a leaked email showed Kalanick addressing sex between employees and warning workers of a “puke charge” during a company trip. Right before Kalanick left, the company fired 20 employees for various reasons.
The controversial but transformative Uber also helped kick off the gig economy, which has enabled the ordering of goods and services via mobile apps, delivered by workers who may or may not be considered employees. The classification of ride-hailing drivers is a big, unresolved question that may be answered by legislative attempts to codify a California Supreme Court ruling last year on whether gig workers should be considered employees.
Uber and Lyft’s business models would be upended if their drivers’ status shifts from independent contractors to employees, which would require the companies to boost their pay and provide them with benefits. In addition, Uber, which has a much bigger presence around the world than Lyft, has to deal with different regulations in many more markets.
Alejandro Ortiz, analyst for SharesPost, a San Francisco private-trading marketplace, pinned Uber’s poor debut on the escalating trade war between the United States and China. The Trump administration increased tariffs on China on Friday. Capping off a tumultuous week for the markets, many tech stocks finished the day with sharp losses, including Apple, Snap and Yelp.
“As Uber completes its transition to public markets, it will be more prone to price swings based on events outside of its control,” Ortiz said Friday. “What we do still know is those investors that were fortunate enough to get in early when the company was still private — both VCs and secondary market participants — have a lot to celebrate.”
Early Uber investor SoftBank has the largest stake, 16.3 percent, which is now worth about $9.2 billion. Other early investors, including Benchmark Capital, Saudi Arabia’s Public Investment Fund and Alphabet, will soon be able to cash in on their investments in the 10-year-old company.
In a note to investors Thursday, Wedbush Securities had set a stock target of $65 for Uber, saying “the company has a slew of opportunities ahead of it in ridesharing, logistics, food delivery, and healthcare (e.g., hospitals and insurance providers) that make it a unique investment opportunity.” The company’s other bets include Uber Eats and Uber Freight, and it is working on autonomous driving technology — which would drastically change its business.
“Our bullish view is unchanged and we believe this choppy tech market and U.S./China headwinds has made this an awful day to price the IPO,” Dan Ives of Wedbush said Friday.