Has Uber Waited too Long to Go Public?
Uber Technologies Inc. has had investors asking “When will Uber go public?” for a while a now. There’s an answer, albeit a tentative one — sometime in 2019.
It may not be the most pressing question would-be shareholders want to ask at this time, however. In light of 2017’s initial public offering disasters — like Snap Inc (NYSE:SNAP) and Blue Apron Holdings Inc (NYSE:APRN) — fans and followers of the ride-hailing service may want to ask if Uber has already waited too long.
In a market that’s increasingly competitive even before Uber has managed to swing to a profit, is it worth investing in, and will it still be worth investing in once it finally goes public?
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Is Uber a Lost Cause?
Uber has waited too long to go public.
The time to sell the market on an idea is when it’s fresh and looks like it has a legitimate shot at becoming profitable. Given what we know now, there’s a possibility that this alternative to conventional taxis could forever remain in the red.
The matter is getting worse rather than better. Last quarter, the privately held organization lost $1.5 billion, down from the second quarter’s $1.1 billion loss, and accelerating 2016’s use of debt.
The bulls will argue that losses are normal for a startup. Amazon.com, Inc. (NASDAQ:AMZN) bled money in its first few years, and look at the powerhouse it’s become. The argument rings a bit flat when used in defense of Uber, however.
Many young companies work their way into the black as they mature, but Uber isn’t exactly a young company. What it charges, how it markets itself and how it manages its back-end technology today is likely what it’s going to do five years from now. There’s not much left in the way of change that could push the company into the black.
That may be the question would-be buyers should ask first — what does CEO Dara Khosrowshahi think Uber can do differently?
Doubt In Uber’s Long-Term Profitability
Part of the doubt in Uber stems from the fact that rivals are already surfacing. Lyft, Inc. essentially offers the same services. Even though Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is an investor in both Lyft and Uber, it’s developed its own self-driving technologies and has deployed a small fleet of autonomous taxis for itself as part of a market test. Nobody really knows why. Alphabet may be building the technologies to use in partnership with Lyft and Uber, or it may be looking to compete with both on the ride-hailing front.
Neither Lyft nor Uber can afford to compete with Alphabet should the company decide to do its own thing.
China’s version of ride sharing, Didi Chuxing already has plans to battle Uber for control of Mexico’s streets.
Competition aside, Uber has its own problems. Chief among them is the nature of the business itself, which opens the door to brand-damaging headlines.
Uber uses contractors as drivers. Although the company performs background checks on its drivers, that vetting may not be enough. Recently, the Colorado Public Utilities Commission discovered that 60 of Uber’s Colorado drivers either had criminal records or previous driving offenses.
Because no driver is “supervised,” the company has no means of keeping tabs on drivers and spotting potential issues before they become embarrassing gaffes.
More than anything, the eventual IPO may not be something to get stoked about simply because it’s a failing business.
Bottom Line for Uber IPO
For the sake of the company, Uber arguably should have gone public two years ago when the buzz was palpable. Going public then wouldn’t have changed Uber’s fate, but it might have been easier to extract a premium from investors. Too many investors have begun to doubt the company’s longevity in the meantime.
The impending IPO won’t definitely be a flop, and Uber shares could still trade above their IPO price once they start trading on a public exchange. There are always some investors who will buy into even the flimsiest of business ideas.
Blue Apron is one example, although other names like Groupon Inc (NASDAQ:GRPN) and GoPro Inc (NASDAQ:GPRO) come to mind. The hype was tremendous when they came to the market, but too many investors learned the hard way that “a clever idea” isn’t the same as “a profitable business.”
Uber, unfortunately, appears to be in the same vein, unless Khosrowshahi has an amazing trick up his sleeve.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
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