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Is the Uber IPO Debut Flop a Sign of Transportation Sector Weakness?

This article was originally published on ETFTrends.com.

If Uber were in the dating business instead of the ridesharing business, then the majority of potential investors were swiping left during its initial public offering (IPO) debut last Friday. Its stock ended its first trading day with a 7.62 percent loss. On Monday, Uber lost a further 10.75 percent as U.S. markets experienced a widespread selloff, but Uber's initial downfall could also be a sign of broader weakness in the transportation sector.

It doesn't appear so at first glance when looking at transportation-focused exchange-traded funds like the SPDR S&P Transportation ETF (XTN) . XTN is up 18.57 percent year-to-date, outpacing the S&P 500's 15 percent YTD gain.

XTN seeks to provide investment results that correspond generally to the total return performance of an index derived from the transportation segment of a U.S. total market composite index. The index represents the transportation segment of the S&P Total Market Index (“S&P TMI”).

Key features of XTN:

  • Seeks to provide exposure to the transportation segment of the S&P TMI, comprises the following sub-industries: Air Freight & Logistics, Airlines, Airport Services, Highways & Rail Tracks, Marine, Marine Ports & Services, Railroads, and Trucking
  • Seeks to track a modified equal weighted index which provides the potential for unconcentrated industry exposure across large, mid and small cap stocks
  • Allows investors to take strategic or tactical positions at a more targeted level than traditional sector based investing

Needless to say, XTN is faring far better than Uber thus far. The ridesharing company's stock fell 6.7 percent after debuting with a price of $45 per share.

“Uber debut didn’t quite live up to the expectations, and that’s why some investors are selling,’’ said Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities Co. “It’s too early to tell how sensitive SoftBank will be to Uber’s price moves going forward. But even if they fall some, that doesn’t have a direct impact on Vision Fund profits.”

Transportation Sector Driving Into Headwinds?

Uber built its business on the back of its self-employed drivers, but is this a business model that is doomed? The company can blame advancing technology for that, especially with the advent of self-driving vehicles.

Obviously, a vehicle that can drive itself has to worry Uber brass in terms of profitability obstacles even if the technology is years away from full implementation on public roads. Nonetheless, the worry is real, especially if self-driving technology makes its way into the logistics side of the transportation sector.

In fact, it already is doing just that. Per a Thomas Insights article, " autonomous vehicle makers are paying more attention to the trucking industry, as trucks typically travel on highways or fixed routes that make automation relatively easy. Automation is also being turned to as a potential solution to the much-discussed driver shortage."

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