Uber Starts IPO Journey With Its Destination

Oct. 19, 2018 7:20 AM ETUBER1 Like
Lipper Alpha Insight profile picture
Lipper Alpha Insight
2.36K Followers

By Breakingviews

Uber (UBER) may have barely started its journey, but it's already focused on the destination. Bankers vying for a role as underwriter for a future initial public offering have advised the cash-burning car service that it may be worth up to $120 billion, according to the Wall Street Journal - nearly twice as much as its valuation in a recent funding round. It's risky to start with a big number, and may call for imaginative views of the markets Uber can disrupt.

Last quarter, Uber's revenue was $2.8 billion, which is about 60 percent higher than the same period last year. That's an astonishing growth rate for such a large company. Yet growth is slowing, and the company isn't profitable. It lost another $891 million in the latest three-month period.

Even if the company manages to stanch the bleeding, ride hailing doesn't appear to be a big enough market to justify such a valuation. Annual revenue in the U.S. taxi and limousine business is about $26 billion annually, according to research outfit IBISWorld. Using America's share of global GDP as a rough guide, the world market is perhaps five times bigger, or around $130 billion.

Uber's gross bookings in the second quarter were $12 billion, and the majority of that comes from ride hailing rather than its side-business in delivering takeaway food. That suggests it has already captured a big chunk of that market. Moreover, competition is intensifying. A revitalized Lyft (LYFT) is also planning to list its shares - and if it does so before Uber, it could soak up capital to sharpen its edge.

Generous mooted valuations are appealing to company insiders, but they're also risky. Recall Saudi Aramco, which has suspended plans to list shares, having boxed itself into a corner by pursuing a $2 trillion valuation from the get-go. Where Aramco mainly drills oil, Uber can always argue to investors that it can grab share in other markets ranging from electric-bike sharing, autonomous vehicles and air taxis to whatever else may come along. The bigger the valuation, the more expansive its ambitions will need to be.

This article was written by

Lipper Alpha Insight profile picture
2.36K Followers
Lipper Alpha Insight (https://lipperalpha.refinitiv.com/) is a free daily news and commentary blog, giving financial professionals actionable ideas and insight to make sense of individual security news and events and stay on top of macroeconomic trends. We have a team of expert analysts that are constantly looking at the financial landscape in order to keep you up to date on the latest movements.
Follow

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.