- if it closes below $45(its IPO price) it will be the first time since 2008 that the happened for a major IPO
- TD Ameritrade executed more orders in the first 10 minutes of trading than they did for the first 2.5 hours with Lyft.
- Uber is 9% of all trading at TD Ameritrade, retail loves this stock,
- market is down today, which isn't helping Uber but its probably not much of a factor
- Kudos to Citadel, stock opened without a hitch and they seemed to nail the opening price,
- Boo to the underwriters(Morgan Stanley), who seemed to misjudge the market's appetite, important to note that major buyers at IPO, Fidelity and such already had exposure to Uber pre IPO so maybe this staying private longer but selling shares to public fudns had an effect?
- interesting piece on how Uber has grown its market cap in the past few years at the expense of its share price and how that effects later employees.
- later investors like the Saudi Public Investment Fund can’t be happy with the opening.
- from Bloomberg without comment...."Overheard trader on the floor: “That’s what you get when you don’t make a profit. If you don’t make money, people don’t want to buy you.”
- Biggest IPO since Facebook, that's something to be proud of!!
- June 4 is expiration of 25-day quiet period for analysts at underwriting banks. Expect bullish initiations on this date
- Nov. 6 expiration of Uber's IPO lockup. Large selling pressure expected to be asserted on this day as is typical for most IPO's.
Personal thought. It may be tough for employee's to not see this pop to say $65-$70 but in the long run its almost certainly better to open flat than to pull a "lyft" and get a first day pop that you price your options at in your head and to then have to cut that price by 40% before you get a chance to sell.
EDIT for comment below.
Who suffers if the price is quickly adjusted downward by the market? How is that different than it being released at that final market price from the get go? Naively I would think that setting it too high ensures maximum value is captured rather than going to early traders.
So the bank has every incentive to price it low, and usually does. So when the market goes even lower, we know that the IPO was done out of desperation and that early investors who had influence over the IPO price were eager to dump some or all of their positions.
One day is too soon to know for certain that this happened. But if the price is still down a week or two later then it probably did.
How is that the correct conclusion. It sounds like the correct conclusion is they still over estimated the market price. Nothing about desperation for or against.
The bank has every incentive not to do that. The bank must juggle the needs of its various constituencies, preferred investors (who provide capital expecting not to have it lose value right away), the firm (which wants to raise capital) and existing investors (who may want to liquidate).
If a bank routinely over-prices IPOs, then preferred investors will stop providing capital. If the bank routinely under-prices IPOs, then firms will choose other banks to underwrite their IPOs.
In addition to the above, the investment bank owns a lot of inventory and strategically buys and sells in order to help keep the price close to the expected price. When this doesn't happen, it might be because the bank couldn't afford to constrain the price movement and had to settle for the bad optics.
This is how the system is supposed to work, but the main reason an IPO would be over-priced (all things considered) is if the existing investors had too much say in the price, since this tarnishes the bank's credibility for future IPOs events.
I'd be keen to hear why you believe it's "just not right at all."
Unless these preferred clients are active traders, this isnt a problem. Remember when government nixed fiduciary resposibility?
Just slide a soon-to-drop, over-valued-at-IPO stock into say,... someones' retirement account? Wouldnt it be weird if a bunch or Morgan-Stanley-managed 401Ks were shifted to include that?
Especially if the bank managing the IPO gets a cut of the cash, there's no downside to such. At least for them.
The reality is Uber isn't worth $65-70 today given long term risk. As many others have pointed out opex is well over 150% of revenue. Now that could be fine if the long strategy can reel that in over the next decade. I don't see any of that other than a smattering of "bets" (Uber Eats, scooters, etc). I could very well be wrong but I intentionally didn't buy given what all tech IPOs have done lately. As a consumer who doesn't have the option to get in early I'm at the mercy of the large firms who can take profit off large positions which snowball bringing the valuation back to reality. I think we see more of these "backfires" as people are sick of propping up large financials and more caution around waiting for stocks to settle. If Uber employees expected it to pop north of $50 they're going to be waiting a while. There's no reason to buy now, risk is high that a few large trades sinks the stock into mid $30s or lower territory.
Business Insider had a nice graph that put the valuation into context: https://markets.businessinsider.com/news/stocks/uber-technol...
Doesn't make too much sense to conflate the two.
Logistics is a low margin winner-takes-all industry which is fairly well understood.
Love to see your working on how logistics is winner takes all.
facebook had paying users AND advertisement targets AND an ability for the paying user to precisely target an ad at the product AND an extremely powerful incentive for the product to not move to competition (product's friend network).
out of the above uber has only paying users - who are ready to jump ship to competition for a penny per mile.
Just saying Facebook had 10x the user as Uber is meaningless.
I feel like Uber's biggest revenue generator would be putting a small smartboard in front of passengers and selling targeted ads.
Data isn't valuable. Using that data to create a product that people will pay for is (e.g. showing an ad to someone en route to the restaurants across the street).
Or most likely the driver will agree to put the running gadget in the glove compartment for an off-the-app tip.
"Uber needs to access your microphone to communicate with the information screen"
"I can't communicate with the information screen Dave. It's voice sounds muffled. Have you done something with it?"
The market is convinced building these huge treasuries of consumer data, at any expense in cost and creepiness, will result in wildly better advertising performance. We've given Google and Facebook 12-digit valuations on that principle.
But advertising is a 80/80 problem: You can get to 80% of potential results easily, and spend 80% of your money, effort, and goodwill chasing the rest. Content-based ads (think the early era of Google AdSense when the ads would be text or fall back to PSAs) sell pretty well, considering you didn't need an exabyte of profile data to build them.
Eventually, fundamentals have to come into play-- these companies need the revenue numbers to justify the valuation-- and the only way to get there is to charge premium prices for their advertising services. At that point, the music stops, when advertisers realize the cost-per-acquisition is poor compared to much cheaper, more scattershot technology, or even just earlier stops on the targeting continuum.
It feels like Uber is a really fucking long way from 33% operating margins.
Sorry, first time that what happened?
$45 was the IPO price, meant it will be the fist time since 2008 that a major IPO closed below its IPO price on the first day of trading.
Really? I was under the impression that closing below your IPO price is quite rare indeed. Do you have other data?
Edit: actually, just saw a NYTimes article with info that it is indeed rare:
Since 2000, only 18 companies valued at more than $1 billion and listing on American exchanges have opened below their I.P.O. price. On average, tech stocks have jumped — or “popped,” in Wall Street parlance — 21 percent on their first day of trading over the past 24 years, according to Dealogic.
2008 has 31 Total IPO’s, restrict that to 1+ billion and you are not talking about a huge list. Restrict that to an unusual few years and it’s easy for an abnormal but meaningless pattern to show up. But, we have no need to make such assumptions.
PS: Facebook is something of an oddity, opening day has technical issues which ended up inflating the price.
The claim was that Uber might be the first major IPO to close below its IPO price that day.
If its not that uncommon then please show me the other major IPO's that traded below their IPO price on the day they went public.
I'll wait :)
Alstom and CIT Group where both top 20 IPO’s of all time and they fell opening day. Several others where up and down at various points in the day. Which is more my point, being down at some point on opening day is fairly common.
And you site an IPO form the 90's? sigh...
If the closing price is below the IPO that is generally regarded as a failure and may imply over-valuation.
Generally regarded by whom* exactly? The world is full of examples of IPOs that did badly on opening day/week but soared like mad afterwards. These generalizations and pretense of knowledge helps no one; especially considering that "over-valued" is not something that can be determined in a short period of time as value is relative to the context in which the asset presents itself.
* as a non-native English speaker, did I use whom correctly or should it be "who"?
Edit: thank you for the reply mr scarejunba!
The goal of the investment bank is to work with the company to come up with a sensible valuation that will clear and pop on the IPO date. The bank has to take into account the market conditions and investor appetite when structuring the trade and setting the price. It is also why you hear of company’s pulling out of IPOs when market conditions are not favourable.
I don’t follow your point exactly, if the value of the asset is relative to the context it presents itself, and the price you set for the IPO is not consistent with the said context, then you are incorrectly valuing the asset. The asset can be under or overvalued.
For the record I have actually worked on IPOs at an investment bank structuring these kind of trades, so it’s not a pretense of knowledge on my part.
It is correct. Object of the sentence. Common mnemonic: whom answered by him/them, who answered by he/they
It reflects badly on the investment bank. But doesn't mean anything about the companies fundamentals or where their stock is going to be in a year. Friend of mine bitched that when his company went IPO the bank priced it low and the result was the bank made a fortune and the companies war chest was smaller than it would have been with a higher initial price.
You used whom correctly, but an English speaker wouldn't notice if you used who either.
Why? There are plenty of examples of equity research analysts pulling no punches on names that the other side of the Chinese wall took public months earlier. And Uber is a classic opportunity for a smart young analyst to get invited on CNBC by throwing some sharply worded shade in their initiating coverage.
Wouldn't someone have to have bought in at $45 and sold for lower in the same day? Why would anyone do this?
should really start looking at this from the underwriter and issuer perspective to understand the success story here. Retail buys ticker symbols that have been marketed to them. Everyone else dumps. Company made a ton of money and can do whatever it wants with it, they gain nothing from secondary market trading today. VCs, founders and employees can't sell for another 60-90 days, but founders can give themselves big bonuses (and employees too but I mean.. lets be honest)
Thats interesting definition of "literally traded a bunch of shares to underwriters in exchange for $8,100,000,000 and let the underwriters worry about liquidity on the stock exchanges"
Uber has dollars for the shares they sold. Liquidity is not a concern for the party of the transaction I talked about.
Sure, you can argue that the $8.1B is something "real" that the owners of Uber have more of, afterwards.
But you also have to acknowledge that the business of running Uber is also something "real" that the owners of Uber have less of, afterwards, having traded it in a heavily-scrutinized auction.
In this case Uber Inc exchanged illiquid stock for liquid dollars.
Why the semantical debate? Did the use of the word “make” really bother you? What about when there is dilution like in most funding rounds? Shares of equivalent value are literally made. In this IPO Im not sure if that happened with the sale to the underwriters or not.
This kind of asset exchange is what we are all trying to do, exchange one asset for a more liquid one, dollars. They succeeded in doing that to the tune of 8.1 billion usd. The same us dollars that give access to everything in the global financial system via wire transfer.
It's actually a big factor.
> It's actually a big factor.
I assume you are trolling but just in case....
the SPY is now up on the day and Uber is still below its IPO price, so I guess we can put to rest the idea that a down market is a big factor in Uber trading below its IPO price.
SV Unicorn hype aside, there's not a big moat around running a jitney cab company.
> Definition of jitney
> 1 : an unlicensed taxicab
Also comparing Uber to Facebook is quite silly too. Facebook had a lot more users than Uber but they are also different types of users. One is a free user with hope for targeted advertisement (in which the advertiser gains/loses money) whereas the other is paid users/riders (but in this case Uber has been losing money each ride and I don't see it changing). Also advertisement has huge margins with not much cost from Facebook's pov but ride sharing logistics is completely different with very little margin where the driver needs to get paid. Drivers are already complaining that they are not getting paid enough for rides and asking Uber to take lesser cut of the ride. So Uber can't raise their cut over their current 20-25%. Facebook's advertisement business doesn't have this problem. Nor does Amazon as they can make their logistics more efficient.
Amazon is able to lower it's cost with economies of scale but I don't see Uber being able to achieve that as their costs only increase as they scale as they lose money on every ride. The only way I can see them become profitable is if and when they achieve driverless cars, which they are betting huge on, but that's a long way to go. Uber is betting on driverless cars to lower the cost per mile. But I think Tesla will beat them to market much much before them considering Tesla already has the tech. Elon even hinted on the Tesla taxi fleet in the next couple years.
Now I realize Elon's got poor judgement on timing but I still think they will be able to achieve that much earlier than Uber. And if they do, I honestly don't see Uber & Lyft surviving.
I haven’t read anything which suggests they aren’t subsidizing rides in their most established markets just like everywhere else, and both their drivers and customers can switch to competitors so easily that it’s not obvious how they can change that.
The main difference seems to me that Facebook enjoys a network effect: you can move to a different social network, but who will you find there? While you can download as many taxi service apps as you want and use one or the other, the one that has the cheapest offer. If an Uber competitor comes up with autonomous driving first and offers ride for half of Uber's price, people will switch instantly.
"Taxi apps" definitely have network effects from the two sided market, though not as strong as a social network.
Why is this? In both cases it seems the cost is paying a bunch of servers and engineers to run a website. So why is Facebook seemingly more efficient?
Uber on the other hand has plenty of competition. Their total cost to user has to be competitive vs. not just taxis but possibly owning a car. There's only so much they can charge for a ride and they pay a ton of incentives to get drivers to drive for them in many markets. So the available space for profitability is constrained.
Taxi service is a much more constrained business - you have to pay out product cost plus some incentive to generate supply but you have a strict price ceiling on scaled demand and a lot of competition. The answer for the previous generation of entrepreneurs in this space was to execute regulatory capture and institute a system of restricted supply to boost prices (ie. Medallions, permits etc). So it's going to be interesting to see how these businesses evolve.
If I take an Uber instead of a taxi it’s solely because Uber investors sponsor my ride. The taxi experience is 100% the same thing. I don’t think this is a great business model.
If they are employees, Uber is thoroughly fucked.
True, but time scales matter. Given their current position, it might take 20 years for that to happen. By then, who knows where they or the market will be.
Microsoft in 2016 was $51, $127 now
Facebook was $97, $189 now
We're not even talking about rocket-ship growth here. We are talking about option strike prices losing money in one of the most favorable economic time periods where massive, healthy public business did have monstrous growth.
I would have at least expected price parity with other large companies - even that assumption would have been wrong.
Still, Uber employees will be happy that they can finally sell those RSU awards (in six months when the lockup expires).
Taking these numbers at face value, I can't know if they account for it.
Uber most definitely grew over the last three years.
Over the past 3 years:
FB is up 60%
AAPL is up 98%
AMZN is up 261%
NFLX is up 363%
GOOG is up 60%
Uber was also somewhat unique among unicorns in uniformly blocking its employees from selling shares on the secondary markets.
As someone who does work in the space, no, most companies permit transfers. There are mechanisms in place to reasonably limit them, e.g. rights of first refusal and transfer fees. But Uber was unique in the degree to which they restricted transfers.
(source: turned down offer in 2016 because of employee-unfriendly terms)
Remaining unprofitable is a part of maintaining the illusion that the company has huge upside in the future.
If they believe it just destroys the money it keeps, they will start demanding a payout.
Uber is accumulating… uh. Microservices? Negative goodwill?
They kind of are. It’s just a matter of timing. They are rolling future profits, bankrolled by VC.
Seriously, this argument doesn't make sense to me? How can them spending more money help them make more because of taxes?
I guess it's inspired by Amazon's history of reinvesting, but missing the point that Amazon's motive most certainly was to actually invest into growth.
There are of course many companies that engage in all sorts of morally bankrupt but legal tax optimisation strategies. But Uber is rather different from, say, Apple, in that Uber has absolutely no need for creativity to depress their profit. They are haemorrhaging money the old-fashioned and totally legit way.
Makes a huge difference long term, as one is filled with payroll taxes and high rates, and the other is 15%.
So if you consider getting all salary in cash and then buying GOOG (or any other stock) with it, you come off only a month or two late on the period for which you are holding the stock. And for that, you lose out on the diversity of the stock.
This also assumes that your GOOG stock starts vesting immediately and there is no cliff. Otherwise, you will be holding the stock for "cliff" period longer if you just get cash salary and buy the stock.
Disc: Googler but this comment doesn't have anything specifically to do with Google. Google is just an example here.
If you make 200k a year for 10 years, vs get no salary for a startup for 10 years and then its sold out for 2 million dollars, they are completely different tax conditions.
Im not an expert or have been through this, but if you sell 2 million dollars at 15% long term rate vs the 35~% + medicare of salary, the difference will be huge.
You should be already rich and structure your capital properly for this to work.
I see a lot of parallels here. No one doubts anymore that app-based cabs are the future and traditional taxis business is pretty much done now. So if you take that as foundation then there has to be one or two companies that would eventually dominate this business. With first mover advantage, Uber has good chance of being one of them.
It drives me crazy that so many people equivocate them.
Is all that money lost just subsidizing the cost of the ride? If they stop subsidizing the drive price, which they will have to at some point I imagine, will people just abandon the service?
This writing has been on the wall for ages, but people keep looking past it.
Uber I think somewhat internally knows this, and have thus tried either moonshots or diversifying. Uber Eats actually looks to be profitable since you take driver surplus and turn it into profits, simplifying a bit. Self driving moonshots are just that - moonshots.
You can already see the effects of them squeezing drivers with recent strikes and issues including a possible 600M+ arbitration costs from drivers.
Retailers can use economies of scale to lower prices and increase variety of products. There are no economies of scale in Uber the way it's structured now and the service is largely homogeneous. There could be economies of scale with self-driving cars, but why should they be the winner there?
The only way they managed to offer lower prices (which is the main concern to riders) is through VC subsidy. There is simply no way to significantly lower prices for taxis, unless you have self-driving cars.
The only thing Uber has is a limited power of a local network effect which is a relatively weak moat.
He has proved his words countless times now. I have no idea what you are talking about. Only criticism I have about Elon would be his estimations on the time but I work in the tech field too and I can relate to issues coming up which postpone the deadlines.
How exactly is Waymo thought to be the leader? It's like the same argument short sellers have been making for years that Tesla electric cars will be overtaken by other car manufacturers. Come back to me when Waymo has overtaken Tesla in actual and on the market product.
I think history has demonstrated that betting against Musk is not a wise choice.
Uber burns money like it's going out if style and has no clear path to profitability.
From what I saw in the S-1, their core platform -- which I assume is ride hailing -- was profitable until Q4 2018. They offer heavy incentives in order to compete, but once they're sufficiently established in a market, looks like they can become profitable on that front by no longer offering promotions in order to fight Lyft/whoever.
They just need to stay solvent longer than the competitors, and being in more markets than the competition should help with that.
Their R&D is also massive, but they could stop most of that if they needed to.
As much as I love Amazon and always have, in the early days it was "just" ordering books online. Yes, that was great and again the UX was great but it didn't seem as revolutionary as Uber.
Edit: negative marginal costs -> negative marginal profits.
It’s why we use multiple metrics to evaluate a business, but it’s clear that Uber has large positive gross margins.
Ignoring all other expenses and saying that a company is a good business is ignoring reality.
I’m not just choosing a method that makes Uber look bad. They are not profitable or successful based on a legal GAAP definition of profitable.
If we just cherry pick numbers, we might as well think that WeWork’s made up metric of “community adjusted EBITDA” is valid.
If people are perplexed by uber today it's because the unit economics look horrible, and it doesn't seem like they will improve without a major technological advance.
Edit: TBF, I was curious so I checked out AMZN's first year of trading: https://finance.yahoo.com/quote/AMZN/history?period1=8528832...
They dropped 20% on day one. I don't think that reflects investor skepticism re: shopping online, but skepticism re: the myriad risks they faced as one of many money losing online retailers.
With Uber, what's their moat, so that when they raise prices to become profitable users don't just move away?
Lyft/local taxi companies/public transport, all have the infrastructure to provide the service that uber provides.
The moat is there but the question is one of diversification and sustenance as a public company. In the coming days, there'll be a massive internal push to reduce costs, diversify and become profitable. If the foundation of the company is strong, they'll be able to get through this period. Instead, if most of the early employees jump ship (which I strongly suspect is likely to happen), it's going to meander. For Uber's own sake, having a mature and repentant Travis back might not be a bad thing. They'll need a second wind at some point.
Uber essentially sets money on fire in order to make the rides cheaper than alternatives, but that will eventually end. I've got some bad news for you about what happens to prices when that occurs.
Of course that is the ultimate goal of Uber, and all ride sharing systems: to destroy any and all local public transit and competitors, no matter the cost, by setting obscene amounts of money on fire and then, when it's all said and done, they get to be the only name in town and price however high they want.
(Side note, but it's going to be legitimately hilarious when Uber re-introduces the concept of "buses" and tech nerds here drop their jaws in disbelief at how amazing it is.)
> Public transport is barely used.
I've got some bad news about places outside of the US (and even many places inside the US).
> Uber is providing a subsidized public service while employing a lot of people.
No they don't; they actually do not do either of those things. Uber isn't a "public service", by definition, that is, unless words simply don't mean anything anymore. It's a business designed to make money; the fact that you confuse these two proves Uber's marketing is working on you, not that it's actually true in any meaningful way.
They also don't actually "employ" any of their drivers, the largest part of their "work force", and they have argued that position in court as well in order to avoid paying benefits, etc for their drivers. And of course, their inevitable goal is to just move to autonomous cars as far as possible, meaning those "employees" (who aren't actually legally defined as such) will eventually get kicked out of the whole system, if they can get there. Of course, once that happens, the tune will go from "uber employs a lot of people, and therefore they're good" to "why did you ever expect uber would keep employing you? just get another job" over night, without a hint of self-reflection at all.
Lyft already did: http://nymag.com/intelligencer/2017/06/lyft-reinvents-the-bu...
Is Delta Airlines "public transportation"?
Public transport is barely used in the USA perhaps but that's not the only market Uber needs to compete in to succeed.
And this isn't taking into account Uber's many run-ins with local authorities, which are dragging on , costing money and have the possibility to shut them out of some markets.
From what I understand Uber's main answer to this is "autonomous taxis" but to me that's a long way from being a viable business model.
For street hail, the cost is higher because the government sets regulation about the equipment (eg compulsory CCTV, meters etc).
The net result is that the cost of an Uber ride is almost identical to a street hire, identical to using one of the other apps that are around (13 cabs, Ola etc).
Uber has a name/brand advantage, but it has lost the cost advantage over the old taxi model and it has lost the app advantage as the app is easily replaceable.
Many drivers operate on more than one app and street hail cabs (the "original" taxis) operate on both.
Uber's business model for their core business is unsustainable, the margins and operating costs are identical to other operators, there is no advantage of scale.
In one of Uber's largest markets, NYC, public transport is extensively used, and I assume that many price-sensitive Uber users will go back to taking the subway or bus if Uber raises its fares too much.
Luckily for them: Cuomo and De Blasio have a running bet going to see who can bugger it up more completely.
Uber's Q4 2018 revenue was about $3B, up about 25% YoY. Its losses are a little hard to parse due to some tax shenanigans, but maybe $865M is about right (or maybe it should be worse), so 28% of revenue. Its market cap right now is around $85B, about 28x quarterly revenue.
Uber is already withdrawing from Asian cities (eg Bangkok) where the price of taxis was close to cost, and in other cities (eg Melbourne), where Uber's flouting of the existing law has lead to deregulation, Uber is just another brand in the market. The price of a normal taxi hailed on the street and an Uber (I took Uber to/taxi from the city the other day, non peak, non surge) was literally within 5%.
It assumed that the market would not react or it assumed that the VCs would keep funneling cash to keep it going.
Uber's business "model" always was unsustainable and the IPO and subsequent drop is entirely realistic as people realize that.
Uber Eats and some airy-fairy driverless vehicle models will not sustain it.
Currently Uber does not fund its vehicles, how does it think that the capital cost of running a driverless taxi fleet in a city will somehow be cheaper than the current cost of driver+car?
Uber doesn't have the capital to actually replace its current business model with one that is capital intensive and it will be eaten alive by existing fleet logistics and car manufacturers. It has no distinct advantage when operating a driverless fleet than Fedex or UPS or the equivalent operators.