The time has finally come. Uber, the global ridesharing giant and most valuable U.S.-based private tech company, has made public its registration document in advance of an IPO to come as early as next month. We will be dissecting the 300+ page document over the following weeks, but some interesting information jumped out at our first pass, including a number of strong indicators for the company. We believe these signs, some of which are outlined below, may translate to strong demand on Wall Street, potentially resulting in a valuation above that of its last private funding round.
Significant Addressable Market: The company estimates the “Personal Mobility” total addressable market opportunity at $5.7 trillion. They claim to only have penetrated <1 percent of their current addressable market– a sign that growth may not be tapped. We must note that this level of penetration has come at a steep price and if that cost doesn’t diminish going forward Uber will be strained to get out of the red.
Positive Signs for Operations: The company appears to be controlling costs gradually. Operating losses in 2018 decreased over 25 percent from the year prior, returning to levels seen in 2016, despite revenue being 3 times higher. If this trend continues, Uber could be positive on operating margin basis sooner than previously expected.
Diversification, in Services and Geography: Falling in line with the Uber narrative of broad reach, 52 percent of gross bookings in Q4:18 came from outside the U.S. Additionally, Uber Eats is increasing its proportional contribution to net revenue. 2018 was 8 percent, up from 1 percent two years earlier. Uber Freight even contributed $125 million to revenue in Q4:18.
Uber, the “Ridesharing Holding Company”: The $997 million net income posted by the company is largely attributable to the nearly $5 billion in proceeds from the sale of both its Russian and Southeast Asian operations. One important consideration is the equity position Uber maintained in the local competition upon exits. For Russia, Uber estimates an equity position of 38 percent in MLU B.V., a company formed with Yandex, the remaining ridesharing company. Similarly, Uber received a 23 percent equity stake in Grab upon exiting Southeast Asia. It appears that, despite removing operational risk in those geographies, Uber’s bottom line stands to grow if the global rideshare market does.
Burning Cash, But Significant Cash on Hand: Cash burn from operations was $1.5 billion, but the company, before the IPO cash influx, has $6.4 billion on hand in cash and cash equivalents. A common question when these loss-generating companies come to market is: how long before they have to raise more money? Based on Uber’s cash flow statement and balance sheet, that road is long.
Slowing Growth & Significant losses: Uber saw revenue growth of 42 percent from 2017 to 2018, a stark decrease from the 106 percent enjoyed the over previous year and significantly below the 103 percent posted by competitor, Lyft. Uber’s operating losses totaled over $3 billion in 2018.
Uber chose to use a preliminary placeholder of $1 billion for the capital they are looking to raise, a substantial departure from the $100 million preliminary figure we typically see from other issuers in their public filing debut, including Pinterest and Lyft. We’ll see if this positivity carries through the company’s roadshow, but one thing that’s hard to argue is that this offering will likely make a splash on Wall Street.
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