Uber: Biggest Unicorn IPO Since Facebook
May 7, 2019 | Blog

Uber: Biggest Unicorn IPO Since Facebook

The time has come: Ten years and $76 billion in the making, Uber will reportedly be hitting public markets on Friday. The big question on everyone’s mind: What will this IPO look like? Smaller ridesharing competitor, Lyft, took the plunge last month and has delivered lackluster performance thus far, while other unicorns including Beyond Meat and Zoom Video are trading more than 100% above their IPO prices. Much like Lyft, Uber’s IPO was reportedly oversubscribed two days into its roadshow. The strong response suggests that investors are still eager to get into the company, despite Lyft’s rocky start.

While Uber benefits from broader scope and larger size overall compared to Lyft, the company will have to convince investors it can mitigate the risks inherent in its business model. As a global company, Uber will be more susceptible to political risk, such as the market’s negative reaction today about potentially higher tariffs on Chinese imports. Because Uber is a larger company, the magnitude of its losses is considerably higher than its smaller counterpart. Uber’s operating loss was $3 billion in 2018 vs. a $977 million loss for Lyft. With an uncertain road to profitability, Uber will have to clearly and convincingly demonstrate its long-term growth potential.

What we’ve learned from the five big IPOs this year:

The collective results from unicorn IPOs this year suggest investors are valuing companies by their individual merits, not collectively as a risky asset class. The table below illustrates how the share prices of four recent IPO companies have changed at various benchmarks. Two of the companies that went public with net losses on their income statement, Pinterest and Beyond Meat, priced their IPOs nearly at or below their last private financing share price. At $50 per share (the upper range of Uber’s most recently disclosed price range), the company would be going public at a share price only 3 percent above its last private financing. Clearly, Lyft’s performance in the public markets has had an effect on Uber’s potential valuation. Though the ultimate IPO price could be above the current range, it’s unlikely the company will seek the $120 billion previously rumored. This conservative strategy could be a boon for shareholders, relieving some pressure on the company, which is likely years away from turning a profit.

Share Price Change from Last Private Financing to IPO Price Share Price Change from Last Private Financing to Close 5/3 Share Price Change from IPO Price to Close 5/3
Uber (Estimated) 3%
Lyft 52% 32% -13%
Pinterest -12% 32% 49%
Zoom 140% 429% 120%
Beyond Meat 3% 176% 167%
PagerDuty 41% 172% 93%
Source: SharesPost Research, Y-Charts; SEC Edgar; Uber Technologies S-1/A

One notable takeaway from the table is, at every level, unicorns that have completed IPOs this year are trading above their last private financing rounds. While some pundits have posited these companies are overvalued given their operating losses, public markets have shown they don’t agree. Two primary reasons for this are growth and growth potential. The average revenue growth for the five companies listed was 112%. By and large, these companies claim to have tapped only a small percentage of their total addressable market. The risk inherent in such claims is that those ambitions may be overstated, but investors realize such growth figures are difficult to find in other asset classes.

What does it means going forward?

In its current range, Uber’s IPO will be the third-highest valued tech IPO ever and the largest such IPO in the past five years. Uber’s IPO may have a direct impact – positively or negatively – on the other unicorns looking to enter public markets this year, including Postmates, WeWork, and Slack. Postmates will be especially interested in Uber’s IPO because it is a pure-play competitor of one of Uber’s fastest growing segments – UberEats. Over the past three years, respondents of our annual ridesharing survey have identified UberEats as the fastest-growing service used.

Top 3 Uber Services
Source: SharesPost Research; Annual Ridesharing Survey

Financial information provided in Uber’s S-1 tells a similar story. Despite contributing only 8% of net revenue in 2018, UberEats revenue grew 106% from 2017 to 2018, while ridesharing revenue grew only 40% in the same period. This trend suggests food delivery is developing as the next major battleground in mobility.

2016 2017 2018
Segment adjusted net revenue ($ in Millions):
Ridesharing $2,996 $6,434 $9,013
Uber Eats $17 $367 $757
Net revenue contribution:
Ridesharing 93% 89% 90%
Uber Eats 1% 5% 8%
Source: SharesPost Research; SEC Edgar; Uber Technologies S-1/A

Even so, the results of the IPO may be difficult to interpret. On one hand, Uber’s EV/Revenue multiple at IPO above Lyft’s could indicate how much investors value the other services it, like UberEats. That said, Uber may earn a high multiple based on the broad services and geographic diversity, coupled with the nearly $5.7 trillion market it is looking to capture. Either way, Uber’s performance will undoubtedly have broad implications for Postmates and other unicorns next up to bat. We will be closely monitoring the company this week as it completes its historic public offering.

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CONFLICTS

This report is distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own financial advisors before making any investment decisions. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about the subject matter therein, including all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be during their employ directly or indirectly related to their specific views contained in this report.

Analyst compensation is indirectly based upon the growth and success of SharesPost, Inc., including the overall performance of its subsidiaries, the individualized performance of any such analyst, and the development and progression of the overall research effort. SharesPost, Inc. earns revenue from, among other avenues, brokerage sales, and therefore the analyst may indirectly benefit from research reports that have the ultimate effect of increasing trading activity, either through SharesPost Financial Corporation and/or with SharesPost Investment Management, LLC.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, transaction, or security. The opinions expressed in this report reflect the judgment of the analyst at a specific point in time and are subject to change. The information contained in this report has been obtained from sources the analysts consider to be reliable; however, there is no guarantee the any of the information is accurate.

Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.

Alejandro Ortiz

Alejandro Ortiz

Alejandro is a Research Analyst, Private Investment Research for SharesPost Research LLC. Prior to joining SharesPost, he was a Valuation Analyst at Duff & Phelps with a focus on TMT industries.

PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

CONFLICTS

This report is distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own financial advisors before making any investment decisions. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about the subject matter therein, including all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be during their employ directly or indirectly related to their specific views contained in this report.

Analyst compensation is indirectly based upon the growth and success of SharesPost, Inc., including the overall performance of its subsidiaries, the individualized performance of any such analyst, and the development and progression of the overall research effort. SharesPost, Inc. earns revenue from, among other avenues, brokerage sales, and therefore the analyst may indirectly benefit from research reports that have the ultimate effect of increasing trading activity, either through SharesPost Financial Corporation and/or with SharesPost Investment Management, LLC.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, transaction, or security. The opinions expressed in this report reflect the judgment of the analyst at a specific point in time and are subject to change. The information contained in this report has been obtained from sources the analysts consider to be reliable; however, there is no guarantee the any of the information is accurate.

Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.