Uber is one of the ride-hailing giants if we look into today’s scenario. Uber’s offering could be one of the largest in years and could raise the company more than $10 billion to continue its global expansion. Even if the company is having a global impact with this $100 billion IPO, there’s one big cloud casting a shadow on everything: Lyft. Both companies are deeply unprofitable and provide basically the same basic services. Thus this creates a scenario of the competition in other factors such as driver pay, market share, and other factors that can help get the companies to positive cash flow.
Due to this competition and highly unprofitable business conditions, Uber declared in February that it lost $842 million in the fourth quarter of 2018 on revenue of $3 billion. Here is FinanceShed take on the Uber IPO, have a look.
In a notice to holders of some of its convertible bonds last week, Uber said its stock could be valued at $48 to $55 a share. That would translate into a valuation of about $90 billion to $100 billion which is lower than $100 billion valuations that were expected. Even if it doesn’t reach the aim of $100 billion, it is still a high-profile IPO as according to Aswath Damodaran, IPO closer to $60 billion is considered as a high-profile IPO.
Adverse Events That Are Evident Of Overvaluation Of The Company Itself
Last year, Uber settled a legal dispute over trade secrets with Alphabet Inc’s Waymo self-driving vehicle unit. In this case, Waymo claimed that one of its past employees and an engineer, who later became chief of Uber’s self-driving car project took with him thousands of confidential documents. On this, Uber accepting the whole claim declared that it could have to pay a license fee to Waymo or face a substantial delay to the development of its self-driving technology.
After this claim, there was a sudden fall in the value of Uber and changes in business practices were changed after a series of embarrassing scandals over the last two years. These scandals included sexual harassment allegations, a massive data breach that was concealed from regulators, the use of illicit software to evade authorities and allegations of bribery overseas. This not only affected the company at a financial level but also affected its goodwill.
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The Story Leading To Overvaluation
If we have a close look at the detailed analysis of Uber’s 285-page prospectus, there were various lengthy and data-intensive disclosures most of which were useless for the real investors. The other drastic declaration in the prospectus leads to be evident about the overvaluation of this so-called high-profile IPO which stated that “we may not achieve profitability.” This statement itself carried the risk factor. It was clear from the prospectus that the company has overestimated the potential market size. Also, the huge amount of IPO was built to hide the key issues in the company which can be the reason for further losses. Also valuing the worth of Uber is a much more complicated task as the company is not only associated with ride-sharing but also includes food delivery service, Uber Eats and other smaller bets like Uber Freight.