Uber IPO Countdown: New CFO & Solid Financials demonstrate Softbank’s influence
September 5, 2018 | Blog

Uber IPO Countdown: New CFO & Solid Financials demonstrate Softbank’s influence

With a new CFO and improving financials, is Uber taking clear steps toward a 2019 IPO?

As we look ahead, three questions loom large. First, how does Softbank’s big investment look in light of Uber’s 1H:2018 financials? Second, what should CEO Dara Khosrowshahi do to get ready for an Uber IPO over the next 12 months? Third, how would public investors value the IPO?

1H:2018 results suggests Uber shifting gears since Softbank investment: As the ridesharing industry shifts toward sustainable unit economics, SoftBank could play a key role in stabilizing the industry. SoftBank has invested more than $20 billion in ridesharing companies, including 10 percent plus ownership positions in Uber, DiDi, Grab, and Ola. Uber’s recent results seems to reflect its SoftBank investment: the company is slowly, but surely, moving towards a more sustainable economic model based on rational growth and a clear path towards profitability.

Over the past four quarters, Uber’s revenue growth rate has decelerated from roughly 75 percent year-over-year growth in Q3:2017 to 57 percent in Q4:2017, 55 percent in Q1:2018, and 41 percent in the most recently concluded quarter. These figures exclude one-time adjustments and divestitures so they might understate the true growth of the core business. Still, the growth is very strong. During this period, operating losses have gotten increasingly smaller, though this progression has been somewhat bumpy. We believe Uber is on track to generate enough cash from its core business, so it can self-fund its core operations, excluding growth initiatives such as self-driving car and flying taxis.

Exhibit 1: Uber’s Net Revenue and Operating Losses Over Past Two Years
Exhibit 1: Uber’s Net Revenue and Operating Losses Over Past Two Years
Source: SharesPost Research; Uber financials reported on various media sources

Uber CEO should focus on management team and culture: Dara’s to-do list remains long. His next step should be prioritizing internal team-building and employee morale over external corporate development initiatives or media/investor relations. Over the next six months, we expect the CEO to resolve lingering regulatory issues in New York and London. Despite a new $500 million investment for Toyota to develop self driving cars, we believe the company should divest this business. Furthermore, we expect Dara to round out an IPO-worthy top-management team, including marketing and HR leaders.

The Institutional Investor’s view of an Uber IPO: If Uber goes public in Q4019 or in Q1:2020, as Dara recently suggested, potential public investors will likely calculate the company’s enterprise value based on a blended average of 2020 and 2021 financial estimates. The most recent Uber disclosures imply a $11 billion to $12 billion annual revenue run rate. Assuming reasonable growth rates, we expect Uber’s net revenue to grow to between $25 billion and $30 billion in 2020–2021. Such an increase would imply a 25 percent four-year CAGR (compounded annual growth rate). Applying an EV/revenue multiple of 5.0x yields a valuation ranging between $125 billion and $150 billion.

So what does that mean for profitability? Peak EBITDA multiples for marketplaces have hovered around 50–60x for one-year forward estimates. Assuming investors are reluctant to pay beyond this range, we estimate EBITDA in the range of $2.5 billion to 3.0 billion in 2020, or overall EBITDA margins in the high single digits in 2020. That would rapidly approach 10 percent in 2021. Hitting these growth rates would be difficult for any company but even more so for the world’s highest valued unicorn.

Creating even more shareholder value: A sum-of-parts valuation analysis reveals significant upside potential: We believe Uber can unlock greater shareholder value if it divests or spins off its self-driving car business, as well as its operations in India and other parts of Southeast Asia. As highlighted in our recent report, we estimate that Uber’s non-core assets are worth more than $17 billion, inclouding Uber’s ownership stake in DiDi and Yandex, its Southeast Asia operations, and its self-driving car business. Assuming $1 billion in cash burn in 2018, Uber would still have $5 billion in cash on its balance sheet at the end of this year. With Uber’s $54 billion blended valuation after the SoftBank investment, we estimate that core business is currently worth $32 billion—nearly three times the company’s estimated net revenues for 2018.

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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.