Uber testing investors’ faith: Files IPO with disclaimer – won’t make money; here’s why

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Published: April 12, 2019 1:48:13 PM

Uber IPO will still be attractive for investors, because of the large opportunity it provides.

Uber has about 91 million monthly users (for its rides and Uber Eats) but its growth is experiencing a gradual decline.

American ride-hailing giant Uber released the much-awaited draft papers of its proposed mega IPO, in which it sprang up a surprise — an announcement that the company may never make a profit.

While it was a part of the mandatory IPO filing disclosure to reveal the losses that the company has incurred in the last year and will possibly continue to bear in future, it was quite a bold step by Uber to say that it may not do well. “The disclosure also highlighted how far Uber remains from turning a profit, with the company cautioning it expects operating expenses to “increase significantly in the foreseeable future” and it “may not achieve profitability”,” Reuters reported.

Uber has about 91 million monthly users (for its rides and Uber Eats) but its growth is experiencing a gradual decline, it revealed in the IPO filing. From the scandal pertaining ex-CEO Travis Kalanick to a rise of rival ride-aggregators such as homegrown Ola in India, the company may feel bogged down by competitors. Uber lost over $3 billion in 2018, it said.

It is not about money, honey!

But, Uber IPO will still be attractive for investors, because of the large opportunity it provides, said Satish Meena, an analyst at Forrester Research. “Amazon proved in the past that profit is not the key driver for investors to buy a stock,” Satish Meena told Financial Express Online. Also, Uber has an edge with it being well positioned to capture a large market share, justifying its high valuation, he added.

Uber may be in a position to command high valuation due to the huge market potential and its capability to take a leading position in each segment. “The total opportunity which Uber is targeting is sized at $12 trillion — including personal mobility, food delivery and freight,” Satish Meena said. “Uber is well positioned to capture a large share of this opportunity making a justified case for a high valuation,” he added.

How Uber will drive mobility for more IPOs

With its public offering of $10 billion stock in the IPO, Uber’s valuation is expected to rise to $100 billion — a remarkable event, if it happens. However, the proposed valuation is below the earlier expected $120 billion. Nevertheless, Uber’s recent offering is the biggest public issue of the year and among the ten biggest offerings of all time.

The mega IPO will not only mobilise money for the company itself but will also boost the conditions for other tech offerings. Uber IPO is promising for the future of other tech startups as it will bring liquidity in the market. “It will create a lot of value for investors which will fuel further liquidity in the market for investment. This will certainly bring more money for startups for investment,” Satish Meena said.

Previously, Uber’s main rival in the US, Lyft also went public, just weeks before Uber filed its IPO. However, Lyft recorded flat response once news for Uber IPO surfaced. Attributing Lyft’s performance to it being overshadowed by Uber, Satish Meena said, “Opportunity for Lyft is limited by geography, categories and investment in future technologies. Also being the number two player in the US market where Uber leads by big margins may be the cause of this.”

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