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Uber opens at $42 per share (techcrunch.com)
397 points by kgwgk 66 days ago | hide | past | web | favorite | 437 comments

This is unfortunate for many of the rank and file Uber employees but it’s good news for the stock market in general. It’s showing we’re not in a tech bubble and companies are still going to be valued based on how strong their business case is.

With the burn rate uber has, it'll be bankrupt in < 2 years. There are no other suckers to buy in after the public.

I've never understood why so many people were/are so bullish on Uber. I understand that ride hailing is a big deal, but it doesn't feel like it's that hard to launch a new ride hailing company.

I'm basing that opinion on what I've seen in my city. When Uber and Lyft left Austin, there were lots of alternatives that had existed or popped up to fill the space.

Aside from brand recognition, what does Uber have that the others don't?

> When Uber and Lyft left Austin, there were lots of alternatives that had existed or popped up to fill the space.

I tried to use one or two of those alternatives. Setup was a pain and I ended up taking a cab. I have at least one coworker who couldn't get a ride because he was in South Austin.

Additionally. if your company is only in one city, visitors have to know about, install, and setup a new app just so they can use you; it's just as easy for them to take a cab. Last time I needed a ride in DC, I used the Lyft app that was already on my phone. There was no friction in being in a different city.

Maybe there was a local alternative in DC, but who's going to look up local ride sharing companies and install yet another app when the app they already use at home already works? Even hailing a cab is easier than installing a new app for one or two rides while you're in a new city.

Uber and Lyft have network effects.

Really? I’ve mentioned it on here before but I used Fasten as a rider pretty religiously in Austin whenever Uber and Lyft left and it was just as easy to set up and hail rides as with Uber and Lyft. I switched back to Lyft when they came back only because the rides subsidized by VC money ended up being cheaper but if they were same price I would happily switch back to some other software.

Regarding your second point whenever I travel internationally one of the first things I do before traveling is to search for rideshare <cityName> on the internet. Whatever pops up I just download that app and set up my payment before I even get there so I can seamlessly hail rides. Often there is a thread on TripAdvisor waiting for me that compares the options.

I think Fasten declined my card. I then tried FARE, but it wasn't working either for some reason, and I was in a hurry, so instead got a cab instead (which I paid for with the card Fasten didn't like).

I hadn't expected to be in DC--My connecting flight was cancelled, so I needed a ride to the bus station. But I think if it had been planned, I would have Googled "is Lyft in DC?" and seen that I was all set.

Maybe I could save a few bucks by installing an alternative service, but it wasn't worth it to me to bother. (On the other hand, my price insensitivity is largely because I only take a Lyft/Uber about six times a year, so they might lose heavy users more quickly.)

Uber and Lyft have "network effects"? How? Explain that.

I couldn't tell you what car sharing service any of my friends use.

When I was in Malta earlier this year, there was no Uber. I downloaded an app called Taxify while sitting at a cafe, and called a car from it. It's not a huge barrier to download and install another app, even when trying to call a car.

> Uber and Lyft have "network effects"? > I couldn't tell you what car sharing service any of my friends use.

It doesn't matter if you know who uses it. It only matters that there are. People are more willing to drive for it if there are plenty of users. If there are more drivers, there's more likely to be one nearby when you request a ride, so service is better. Better service makes for more riders. More riders makes it more worthwhile to be a driver. Positive feedback loop based on network size = network effect.

> I downloaded an app called Taxify while sitting at a cafe, and called a car from it. It's not a huge barrier to download and install another app, even when trying to call a car.

You know what's even less of a barrier? Not having to download and install another app.

Maybe it's not a huge barrier to you, but you're a single data point. You're talking to a second data point that's telling you that if I have a ride-hailing app on my phone that works, I will choose it before I install another app, every time.

My belief is that most people will take the path of least resistance, just like I do. How confident are you that they won't?

It has local network effects.

Brand recognition is huge. It's easy on HN to abstract this away as a simple scheme, but your customers are entrusting their lives. Lyft and uber initially had to pay out of pocket hourly wages to get drivers on board. Yes you can pretty much have insurance a car and a simple app and recreate the service but there's much more in it for anyone but big players. And why would they try jumping in at this point?

I don't think brand recognition is huge. In my city I've seen people jump from Uber to Grab to GoJek in the space of 3 years as each new entrant slashes to win market share. No one has had any trouble switching.

There's brand recognition. And then there's brand loyalty. Uber has a lot of recognition, but not necessarily loyalty.

Ease of competition aside, I still think Uber is a massive bubble. Ride-hailing is of dubious actual utility, it's been causing traffic problems (and has been getting regulated accordingly), it has ethical problems with regards to employment (and faces constant threat of regulation from that angle too), and above all else, it's clear at this point that it will never be profitable while it relies on human drivers.

Investing in it is basically a hail-mary that we'll get fully autonomous vehicles within the next couple of years, and even in that best-case scenario Uber would be a strong-but-not-world-eating company (the traffic problems would still exist, and operating costs would skyrocket in the short-term before they go down). I can't fathom how it's worth nearly $10 billion dollars. I almost want to short it.

> I can't fathom how it's worth nearly $10 billion dollars. I almost want to short it.

Well then you'll really not fathom how it's worth $80 Billion. Which is it's actual market cap.

Uber is worth more than Ford and GM combined.

Dubious utility? It's a massive improvement over cabs for the consumer.

Is it though? Cabs have apps now. What makes them different? If the answer is the price, well, that price is unsustainable and denies thousands of people a living wage.

The answer isn't price (IMHO). It's the quality of service. I'm mostly talking about better cars, friendlier drivers, and rides that show up when they say they will.

I haven't used a cab app. Are the taxi apps similar to Uber and Lyft's where it identifies the car and driver and you can track the location of that car on a map? Do drivers and passengers rate each other?

Answer: it depends. When I lived in Malmö they had Taxa97 which was basically the same as Uber/Lyft. You can schedule rides, rate drivers, map view, and see the price of the ride before you take it. same with the taxi apps in Denmark. Other places have not as nice taxi apps. But in general taxis having to compete has generally brought them in line with U/L, at least in most of Europe.

The only major difference with the taxi apps is that the drivers are first party instead of third party so the companies have a perverse incentive to trust their drivers more than the riders. Of course, the more competition you have the less of this behavior you see.

Yet at the same time the drivers are fingerprinted and background-checked. I'd say that's a good tradeoff.

Uber offers a single app that works in most major cities in the world, which is fantastic as a regular traveler.

Versus having to find, download, and set up a new app for every new city... maybe on roaming data or dodgy airport WiFi... when you've just flown in...

Somebody needs to make a MetaHail app that shows the fare and wait time for every service available and then you pick the one you want.

> Aside from brand recognition, what does Uber have that the others don't?

Brand recognition is no small thing. Hyper growth is what a lot of companies are going for, because that's the model that lead to amazon dominating the world. Ubering being a verb is very valuable.

Hypergrowth from re-investing profits is very different from hypergrowth from kind investors.

One of those leads to massive profit (eventually), and we'll see what happens with Uber.

Disagree. Everything is a trade off. You can either choose to aggressively grow at the expensive of burning cash or you can try to focus on becoming profitable. Many companies bet that the growth story is better than early profitability. Market seems to agree. Remember, even Amazon loses money on almost everything and their cash cow is AWS.

Here in brazil the most popular is Uber and 99 (which Didi, from China, is basically in charge). The price on both is basically the same here in my city, but I still use Uber because one little thing: Uber has fixed price. I know how much I'll pay for that ride. Simple as that.

> I've never understood why so many people were/are so bullish on Uber.

Uber is bullish, maybe that's why?

Uber Eats?

Uber just raised $8 billion from the public markets, with a 2018 net operating loss of $3 billion, which gives it closer to 3 years if it doesn’t cut costs or increase revenue or raise more money, all of which it will presumably try to do. I’m bearish on Uber long term but I’d also be happy to take the other side of that bet.

Right? This is what I don't understand. Everyone keeps saying the only way they make money is with autonomous cars but they're not even close with being able to do that (probably 5 years, at a minimum, and that's in small select areas).

With such a high burn rate, what are they going to do? From everything I read they're not like Amazon where they can just "turn on" monetization unless they're going to hike up their prices.

So, why would anyone invest in this stock long term? What am I missing?

When autonomous cars arrive, Uber is toast. The only actually useful moat they have is experience in managing drivers. When that goes away, car manufacturers, or even private car owners, will just flood the streets just like scooters or bike rentals now.

It will just be a rather simple yet massive capital investment to put those cars on the streets, something that large, traditional companies with their far better financing terms will easily dominate.

This is my thinking as well. If you can manufacture cars you can make them cheaper than anyone could ever buy them. So, if I'm a car company, I'm buying someone (or building in house, whichever looks more likely to succeed; hell maybe even both!) who can handle making the cars drive themselves.

Then you have two businesses; you manufacture cars to sell to people and you have a service arm that handles an Uber / Taxi like service with driverless cars.

>...unless they're going to hike up their prices.

I assume that's what any company like this does eventually once they've captured enough of the market.

Anecdotal but I've definitely found alternative transit when the prices were too much. I'm not going to pay $20 more for a ride if I can just take the bus for 20 extra minutes transit time. There's a tradeoff.

Right but they haven't yet. Lyft is big in the US and most cities / towns in the US and across the globe have small start-ups doing similar ride sharing.

Does Uber have enough market to hike their prices yet? Will it before it runs out of money? If they're IPOing I feel like they have to think they can do this, I just don't get the how.

I used only Uber for probably 3+ years. On a recent business trip (where I wasn't even the one paying the bill in the end), Uber hit me with some ridiculous quote for a fare from Orlando airport to the convention hotel. That was the moment I downloaded Lyft, took the ride for a far more reasonable price and now I regularly cross-shop the two. Many drivers drive for both, so it's not even that different a wait time or experience.

You can shear a sheep many times, but skin them only once.

How much would you like to bet on that? I'm happy to be your counterparty.

If only there were some sort of large, liquid, well-regulated market offering opportunities to bet on the prospects of publicly traded companies.

You can't really bet on "it'll be bankrupt in < 2 years" in the public market.

Can't you short it for more than 2.5 years or buy puts that expire 2.5 years from now?

That's not the side of the trade I want.

The public is an infinite supply of suckers though. Until they go bankrupt, their stock price doesn't have to reflect their financial position. People will buy it if they believe you can dump it to a greater fool later on.

They could also stop spending so much?

Yep I really feel like a lot of these companies are drunk on spending.

I don't think the difference between Uber being valued at like... $75 billion instead of $90 billion says much about whether this is a bubble or not.

> This is unfortunate for many of the rank and file Uber employees

The Uber employees now have access to the public markets to sell their stock options. Quite possibly, they had an option to sell at $45 a few weeks ago for the IPO.

Perhaps some employees "lost out" now that the price has dropped, but that's the breaks. Sometimes IPOs "pop", sometimes they "fall". But its strictly superior to have a market to sell your shares, rather than no market at all.

If that were true, a company losing as much as Uber wouldn’t have been able to IPO at all. I don’t see any case where Uber will be decently profitable. No self driving cars won’t save them.

Uber is valued a whole bunch above zero which is where that company will be when it runs out of money, which it will relatively soon at the rate it's going.

As an employee you typically don’t want your stock to skyrocket on the IPO. Most that do plummet as early investors sell and the employees (who have a lockup period preventing them from selling) watch their “gains” disappear. In my opinion, it’s better to have an accurately priced stock that grows at a healthy rate.

A cart before the horse. Who gets the most profit? The people who finance the project or the people who actually do the project? In a just world, would it be 50/50? Seems skewed... without the builders, there would no buildings.

> In a just world, would it be 50/50?

What is your notion of "fair" and how do you go from there and arrive at that value? I mean, if the people who financed the project didn't invested a penny then the company would not have the means to get people to actually do the project.

The people who actually build the project get paid salary unlike investors who risk a lot of money and may never see a penny out of it if things go south which they well may.

And without money to build there would be no building. Not siding with either, just both are necessary ingredients for success.

I mean, let's be real here, is $42 really disappointing? Because from where I sit, this company is going to be bankrupt in short order.

I'll give you 10:1 odds Uber doesn't declare bankruptcy in the next 5 years.

probably not bankrupt, but they will basically become a small ride hailing company with high prices. This will result in their stock falling dramatically.

Define 'dramatically', and by when you expect this will happen, and I'll offer you odds as well!

In 5 years I expect the MarketCap to be around 10B$ max. If Self Driving cars are a thing then even less than that.

their customer base will be richer//business people ready to pay higher sustainable prices for rides.

I'd be happy to bet you $100 that on May 10, 2024, Uber has a market cap higher than $10B. Let me know.

If you really believe this then you can probably make a healthy amount of money buying put options.

5-year put options on Uber right now would probably cost more than the price of the stock, which would put you at less than even odds. I don't think you can get options yet, though.

A 5-year short.....maybe? Will be interesting to see what the short interest and borrowing rate will be.

It's certainly disappointing for people who have been underpaid compared to industry salaries for the last several years based on their belief that their shares were worth more.

Does Uber pay low salaries? This is the first I've heard of it.

The base salaries are comparable but the share comp, which is generally close to half of comp, was based on valuations that didn't pan out. Now that it's been marked to market it doesn't look great. Keep in mind that other tech companies have doubled their share price or better in the last four years.

Uh, okay, but what you actually said was people were "underpaid compared to industry salaries."

When you accept equity, you accept risk. I don't think that there's a terribly bright future for Uber, but the stock hasn't been a catastrophe so far, and all the other big stocks will have disappointing times too.

In the context of the individual it is useless to speak of average outcomes. Over the lifetime of Uber all other tech stocks have had a huge run. If you had a choice to work at Nvidia and you worked at Uber instead you left $5 million on the table.

Morgan Stanley going to have to do a lot to stabilize the price over the coming days...

On Uber's side, they sold at their $45 mark. However, seems this may have been a down round vs their last private funding round ($74.1BN pre-money vs $76BN last year).

I'm confused by this comment. Is it the underwriter's job to intervene in the market after the initial sale? I thought they simply guaranteed that all the initial shares are sold.

Yes. The lead underwriter needs to stabilize the price post-IPO. When $unicorn_company IPOs, the underwriter actually sells more shares than the IPO company. If the price starts to drop below the originally listed price, the underwriter steps in to purchase these shares back at the IPO price to stabilize it.

It's generally an optics play - how bad would it look if you as a bank, who wanted to continue to offer IPOs, listed a company and its stock price plummeted below IPO on the first day - obviously you didn't do a great job at valuing the company and building an adequate order book.


There's a limit to how much they can prop up the price though. If the market really hates the stock they won't be able to save it.

Is there a measure of this? if you wanted to keep a price at a certain level, obviously you could buy endlessly at a current price while people sell at that price until you own everything.

But let’s also assume some large proportion of players are reactionary, tending to sell when the price drops and buy more when the price rises. If you could show a sufficient demand at price A, then that large block of people would not sell their holdings because the price does not decline beyond A.

Then, the economically rational actors have a dilemma because they believe the price should be B (where B < A), but powerful actors have shown it is unlikely to drop below A for all practical transaction volumes... it may make more sense to treat the true price as A.

I guess what I’m asking is how much money relative to market cap is required to make the market accept an inflated price _without_ actually trading on it and losing money?

Yep. MS has around 27MM shares out there for stabilization pot IPO. Once they blow through that, it's the market's game.

Wouldn't they buy shares to raise the price, indicating they need money rather than shares?


disappointing? jesus, its been an hour. Relax your freaking noodles. What´s with everyone and instant gratification these days? The stock is still in range discovery...

I myself am bearish but sitting this one out because I have no idea what to make of it. One thing I know though, calling it disappointing 1 hour after open during a tightning range is beyond irresponsible. It´s flat out stupid and lacks any understanding of how markets work. The stock could literally pop bull 5 mins from now, or not. Either way I wish people would stop with this sensationalism.

Sometimes I see no difference between these Market Gurus and Horoscope readers. Just say some bullshit authoritatively and some people will believe.

There isn't any difference both are empirically absolute bullshit.


That... doesn't quite work, logically?

Observing that there is no predictable "signal" in stock price changes only proves that whatever you're using to make predictions is unable to beat the market (the "efficient market hypothesis").

Stock prices are very obviously not completely random, in that they tend towards $0 when companies go bankrupt.

There is some randomness, or at least unpredictability, in stock prices. This is called "volatility". But the model operates on the very small tick-to-tick scale, not wether UBER is priced at $45 or $450.

I prefer the more educated folks who provide insights like

"Stocks were down today due to a sell-off"

Or "The Dow is down 312.9 points today due to geo-political tension in the Middle East", etc.

Reminds me of Aswath Damodaran´s china bit: "When in doubt, use China. It´s gonna make you look smart while saying absolutely nothing"

The absolute confidence with which people provide post-hoc explanations is great. Often the data is available for those explanations before the market behaviour and with $10k you could make $500k on SPY but everyone can explain after the fact but no one can predict.

Absolute cock and bull nonsense.

What is funny is when you see CNBC change the headline/narrative when the market suddenly moves in the opposite direction.

Stock drops 2% at open:

"Markets are falling because tariffs are 100% bearish signal. Sell it all!"

Stock rebounds 2% a minute later:

"Markets are up because tariffs can't stop the American economy."

Well, if it's actually possible to read what stars and their relative positions mean for specific people based on when/where they were born - to understand large holistic patterns - then perhaps there are market gurus who have developed the same knowledge, skill, understanding of the larger picture - an intuition developed perhaps trusting your feelings. And yes, the majority are weighted towards being "sheep" who are in the mode of being indoctrinated - following the crowd..

They are referencing the opening price of the stock, not where it currently is. I would argue that for an IPO the initial opening price is important since the spread between the offering price and opening price is often an indicator of the quality of the IPO.

Except that it isn´t

Well. We're now at close of market, and below $42.

legit/dumb question. Math does not add for me on the '$82.4B valuation', they are selling 180 millon shares at $45 which is $8.1B what is the remaining 82.4b - 8.1b = 74.3b value come from????? it said: "Uber had raised $28.5 billion as a private company from no less than 166 different backers, with its last valuation in the region of $75 billion. The $82.4 billion valuation that it finally settled on for the IPO (selling 180 million shares at $45/share)" So it means that when they raised the 28.5b privately it went to 75b valuation???? please explain, thanks in advance...

The market cap (valuation) is the value of one share times the number of outstanding shares (those part of the IPO but also all the existing ones). $8B is the amount of capital raised during the IPO.

but when you buy a share, you are part of only the 8B thats being raised with the other 180 million shares, or do you have a small part of the whole 80~b valuation?

There are 80 billion dollars worth of shares that exist. However only 8 billion of those shares were released for the public markets. The remaining 72 billion dollars worth of shares are held outside of the public markets (insiders, vcs, the company itself, etc.)

Till such time those 72b shares do not become public, are these technically still referred to as options? Also, for ex-uber employees who still own shares, how does one restrict them to not sell those in the public market assuming they are part of the 72b or will they only be part of the 8b?

No, options are not the same as shares. Options are a contract that allows you to buy or sell shares at a certain price.

The employees are part of the 72 billion. All employees (current or ex) have a lock up period after the IPO where they are not allowed to sell.

thanks for your time and explanation!

Those 180m shares would represent ~10% of the company. The rest are either locked up and are not allowed to be sold by employees or certain investors for a certain period* or are held by the IPOing company itself to sell off at a later date, depending on demand.

* This is common in IPOs or other events (eg leading up to earnings announcements). The thinking is that if everybody dumped the stock at once, it'd depress the price. It's also common to prevent insider trading. There are a lot of employees who are probably waiting nervously for the blackout period to expire.

is there a website or something to know how many shares does all major companies, appl, googl, amzn offer to the public market? thanks!

Any stock research platform will tell you shares outstanding ( https://finance.yahoo.com/quote/UBER/key-statistics?p=UBER ), but it’s otherwise as easy as dividing the market cap by the current stock price.

but again, market cap is the full value of public shares available, how can we now that only 10% of uber's shares are public and 90% privately? or how can we know how many public shares does apple offer and how many are private?

No, market cap is all shares, including ones held privately.

They're not listing all ownership of the company on the exchange, only a piece of it. There's still other, non-publicly-traded ownership valued at the rest of the 72 billion.

That's understandable, but for the average non-professional buyer, it's not fair to sell the idea of a '80b company', because it's only that 10% that you guys are saying. thanks for your response!

how much it raised against only matter to figure out how much the VC will pay for the shares. by your numbers, it appear that uber convinced investors to pay $30b for 24% of the company. which now, might only be worth $8b... (taking all numbers from your comment)

Tech crunch's new close to home page button is a daring move I pressed it to see what would happen and then decided not to read the article I came their to read the news not to be sold more news.

My primary disappointment with the Uber IPO is that I don't have a larger wad of money to cover a short position.

The market can remain irrational for longer than you can remain solvent.

"To cover a short position" implies that you have a short position you are buying to cover. You likely mean "to put on a short position"

Well ... if my timing and intuition are perfect then I don't actually need any cash right ;)

> "to put on a short position"

Put is still a bad word because it has a connotation for options trading. (put options vs call options).

Maybe "to bet on a short position" is the best phrasing? "Put", "Call", and "Cover" all have precise meanings in the financial word. "Bet" is ambiguous enough that its kinda clear in this case.

To open a short position. Or simply "to short".

Buy puts?

Eh, nevermind, IPOs don't have options chains yet...


I didn't say that I had shorted them yet, simply that I see no hope for Uber (or Lyft for that matter). Of course with the recent inversion of the yield curve, I'm pretty bearish on the whole market and likely to get out for a year or two as I did in 2007/8/9.

Uber and Lyft IPO is the worst thing that can happen to their users.

Uber will need to become more profitable so they will raise their prices and the users will be the ones who suffer from this IPO

Overpriced. However I don't see them going belly up like all the naysayers over in the corner with pitchforks who are declaring them doomed

"Uber created the market for on demand transportation"

What the fuck is this?

It's a mini cab firm with an app. Mini cab firms existed before Uber.

How do you short stocks? Asking for a friend.

If you have to ask, please refrain from acting and study a bit. Shorting is risky business.

You can buy puts on robinhood fairly easily.

Meh. Bought shares in Zoom. They’re actually profitable.

Yes, yes, I know. This kind of thinking would have me not investing in an Amazon back in the day because they weren't profitable... but they weren't also losing almost as much as they were making in revenue either... and were actually selling a tangible good to prove out a business plan of basically world domination... so yeah I'm happy with my shares of Zoom.

Uber is currently worth more than Stripe, Spotify and Dropbox combined. I'd easily rather own those 3 outright than Uber. Wonder what the market knows that I'm missing.

Not profitable while reaching the market ceiling and bad reception in lots of places... no wonder here

probably one of the worst days to IPO given current china/us trade spat

I would think there's a lot more free cash floating as the sell offs continue.

This was used as a lame excuse.

Uber had actually something to win as you said because of all the free cash floating around and the fact that Uber is completely out of China.

Congrats to everyone!

Unprofitable companies are the only ones that really benefit from IPOs.

An IPO is basically a way for the company to raise money, but tis time straight from the public. Usually when it gets harder and harder for them to attract private investors. The IPO listing basically guarantees that they won't take the public's billions and run.

Successful companies with perfect cash flows (think of Github, Valve, IKEA) always try to remain private. Because they have nothing to gain by raising more money. They can give their employees good bonuses and maintain control of the company.

This is by design. In Silicon Valley we are obsessed with them because they are the only meaningful exit for common employees (take the money and run mentality). The rest of the world doesn't care much because they see them for what they are.

Of course. Startup employees do not know they can sell their 'private' stock already, today. However, they need permissions to do so from the company's board (their answer will be NO. Here, saved you from asking. Or maybe they will offer to buy back the stock with shitty terms), and can only sell them to an accredited investor and not random people/public.

Many companies would be ran better if they remained private (think of Facebook, which now has investor pressure to increase the price, which results in careless decisions about data handling, privacy etc).

This is incorrect. There are lots of cases where profitable companies want to IPO. Specifically the public markets are where you go when you need to raise money at significant levels. Nowadays this happens less often as their are bigger and bigger private investors (so you can raise billions in private markets). However there is still a point at which you may need to go public for fundraising.

You are making a mistaken assumption that only unprofitable companies need to fundraise, there are lots of profitable companies that want to raise capital to fund future growth (and their current cash flows aren’t enough).

Also I am very surprised that you named Github as a well run private company. As far I know, they were definitely not profitable (their spend was crazy) which is part of the reason the board took the acquisition offer from Microsoft. I really don’t think they are a good example of a well run private company.

You are correct that only companies that want capital IPO but that is by definition as an IPO is a capital raise. I believe that direct listing is an exception to this.

You are correct. There are many cases where fundraising for successful companies is needed. From liquidity, to gathering funds to fuel new ventures. Acquiring competitors, etc.

My assumption was that troubled ones also need it. So we should not be surprised that see so many controversial IPO listings recently.

Back in the days before the first Internet boom, most major stock exchanges required a company to be profitable for several quarters before an IPO.

> Nowadays this happens less often as there are bigger and bigger private investors (so you can raise billions in private markets)

Arguably, the reason IPOs happen less now than 20 years ago is because of the increase in regulatory requirements (particularly in the US), and the increase in available funding is a result of that.

> raise money at significant levels.

Define significant. I see softbank throwing billions at tech companies.

This is only true in general for tech companies because they tend to be "capital light"-- they don't require a lot of traditional capital assets such as factories and warehouses. Generally, the only tech companies which require a lot of capital are the ones that are burning cash and need to replenish their coffers. But IPOs can greatly help jump-start the growth of more traditional companies which are often constrained by lack of cash as they grow sales organically, even if they are quite profitable on a net income basis. This allows these companies to open new plants and stores and to hire people to develop new products. As much as tech increasingly dominates the economy, it's far from the only industry that matters.

Do IPOs usually generate new funding for the IPO company?

IPOs seem serve as an `exit` for private investors who bought in while the company was private?

They do both. It's relatively rare for a company to IPO without raising fresh capital for the company. There are however often "secondary" share sales where only "selling shareholders" (rather than the company) receive the proceeds.

An IPO with out raising fresh capital is called a Direct Listing. Slack did it not long ago.

> It's relatively rare for a company to IPO without raising fresh capital for the company.

An IPO without raising new capital would make it more difficult to answer what every buyer should ask: "why are they so eager to sell?" It's a variation of plausible deniability.

It's what Spotify did, I think it's a decent question but it also allows for liquidity, especially since it's such a big part of comp it's not unreasonable to list

I was reading your comment and nodding until this part:

>think of Facebook, which now has investor pressure to increase the price, which results in careless decisions about data handling, privacy etc

Trying to frame FB as a "bunch good kids under pressure" is a monumental mistake. Data has always been their business, selling ads and don't giving two shits about security is part of their DNA

Profitable companies may also want to raise money, to invest it in their profitable business opportunities and generate even more profits.

Facebook voting rights are in the hands of their dear-leader and no amount of investor pressure has direct impact on the decisions made by the company.

> This is because of Facebook's dual-class share structure. Class B shares have 10 times the voting power of class A shares, and it just so happens that Zuckerberg owns more than 75% of class B stock. It means he has more than half of the voting power at Facebook.


Maybe that logic applies to other companies but Facebook is probably a bad example.

It's not that black and white. A lot of profitable companies IPO to fuel aggressive expansion in new markets which would otherwise not be possible and could harm them in the future. Google was profitable when they IPOd https://www.sec.gov/Archives/edgar/data/1288776/000119312504...

>think of Facebook, which now has investor pressure to increase the price, which results in careless decisions about data handling, privacy etc

This doesn’t follow at all. Zuck still has control and they were careless before being public. I would suggest being public is the only thing that puts them in the spotlight for their shitty practices.

> Unprofitable

I hear you, but...

Meh, they say invest in companies who make products you use. I use the shit out of Uber and I don't plan on stopping even if the price goes up a bit. Now, I'm upper middle class, and I understand this isn't everyone's mindset, so I have no idea how the rest of the world feels.

However, there are locatios, like my crappy hometown where I grew up not so fortunate circumstances, where hailing a cab simply wasn't an option. If you want to have fun at a bar, you're driving home drunk.

Bottom line, I believe in this product and I only see it growing in importance - regardless of who is at the helm. That's my gut feel, and that's why I bought in a little today.

Do they actually say that? You should only invest in companies you understand, and being a user if the product helps with that, but that's a metric for weeding out companies, not building a portfolio (i.e. if you dont understand them dont invest, but if you do it doesnt mean you should). The only real metric for investing is if you believe the expected value of the asset to you is greater than the market price. For example, I used moviepass, but I would never have invested in them because they were selling a dollar for 25 cents (which is why I used them...).

Who says to invest in companies who's products you use? That does not seem like great advice. You should invest in companies who are undervalued by the market in your opinion, not just because you like the product but because you think they have a good business around it.

I believe it's a paraphrasing of Warren Buffett's "invest in what you know". https://abcnews.go.com/Business/wireStory/latest-berkshire-h...

I think Peter Lynch said that.

Uber is definitely undervalued on HN. They have so much more markets to enter.

If your business loses money on each transaction, entering more markets isn't going to save you...

They are expanding agressively, that adds to the cost, they could also increase prices. I'm not worried at all.

You are correct if your goal is to maximize the amount of money you have.

First rule is: invest in something you understand.

I'm not really sure about that.

Just like taking investor money at anytime it can be a way to get extra cash to continue to build the company quickly.

The IPO system is wonky and there are bad examples but I don't think your rule makes sense.

Do you really think FB's problems are because of public investors? Zuck has never cared about user privacy. On the contrary, he has always display a "privacy is dead" mentality.


Silicon Valley is obsessed with them because it's the only place where hundreds or thousands of employees are given significant equity; many of them have $100k - $1 million in vested equity 1-3 years into the job. You don't want that frozen in a private company indefinitely. You want liquidity to use it and to diversify your holdings. This doesn't mean you think the company will fail and you just want to "take the money and run".

Needing to raise cash to operate or expand, and positive cashflow arent mutually exclusive ideas.

A company can be profitable and still need more working capital to expand.

That being said, I don't know what to make of Uber, Lyft and WeWork (future) IPO's yet, but I am highly skeptical

I assume an IPO is the easiest way foe private share holders to cash out. Then again, unless you are really asset heavy (manufacturing, etc..), I agree it might be a sign that less dumb money from the later rounds with dumber money. Or the company is burning cash faster than it is generated.

Case in point, when you cash flow positive and idealy profitable even banks would happily finance your expansions. So unless as a company you want to be growing really fast, I don't see the added benefit of an IPO other than cash flow issues. Add too that the increased scrutiny by the authorities and I d prefer to be private.

Of course the same argument could be made the other way round.

Facebook was extremely cavalier about data handling and privacy well before they were public.

A lot of sweeping assumptions and generalizations going on in this one...

No offense, but of course IPOs benefit unprofitable companies. The entire point of an IPO is to raise capital to invest back into the company. Why would you ever have an IPO if you didn't have a plan for that cash, and why would you have an IPO if you had all the cash you needed?

Because the initial investors want to sell their ownership stake.

That isn't a valid "business" reason, though.

The investors own the business. Why would they be worried about the business and not just what is in their own best interest.

They are, but what's in their best interest may be growing the company, not in cashing out immediately.

One only needs to look at Levi’s IPO in March to prove this theory wrong.


Please don't post shallow dismissals and name-calling rants to HN. We're trying for better than that here, such as comments with information we can learn from.


how would the average employee at uber HQ who was there for 4-5 years before today?

it's all a matter of perspective, I think an $80 billion market cap for a company that loses billions of dollars every year with no end in sight is not that disappointing at all for those who can sell today

Those who can sell today did buy it for a higher price yesterday, I think.

Reminder that Facebook opened lower than this and was lower for years before they started growing. Granted, FB can, you know, make money.

> Granted, FB can, you know, make money

And there is the rub. Uber and lyft both loose money on every ride. Their whole strategy was to dominate sweeping markeshare by subsidizing rides, then cutting costs significantly with an autonomous network of driverless cars. AFAIK uber already failed in the second half, so there really is no plan right now with what to do with these massive expensive networks of drivers that both companies are now beholden to, other than shovel more money into the furnace and hope the lights stay on long enough for driverless cars to appear through a competitor who'd be willing to let uber use their tech. Even then I don't see margins being anything but razor thin.

I'd be polishing my resume if I worked at either of these companies.

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