Driving to an IPO: Uber Back on Track?
With a new CEO, the SoftBank investment, and the Waymo settlement, is Uber finally back on track? Clearly, these positive developments are steering the company in the right direction, but as we look ahead, three questions loom large. First, why did SoftBank invest in Uber? Second, what might SoftBank’s upside valuation scenario for Uber look like? Third, what should CEO Dara Khosrowshahi do to get ready for an Uber IPO in the next 24 months?
In the wake of the company’s recent victories, now is an opportune moment to ask these questions. It’s also an opportune moment to revisit our first deep-dive company research report on Uber, completed more than a year ago. At that time, we felt that Uber’s near-term risks and rewards were fairly balanced. In addition, we felt the company was moving in the right direction after essentially exiting its business in China via the DiDi deal. The company was taking a first clear step towards rational growth and carving a pathway towards profitability. While the past twelve months for Uber have been tumultuous to say the least, we remain cautiously optimistic about the company’s outlook.
Based on recent developments, here is our view of the road ahead.
SoftBank can bring order to Uber and the chaos of the ridesharing industry. After the most recent series G-1 financing, Uber raised more than $14 billion in primary financing. SoftBank has now invested more than $20 billion in ridesharing companies, including recent multi-billion-dollar investments in DiDi, Grab, and Ola. We estimate that SoftBank is a 10%-plus shareholder in four out of the top five global ridesharing companies. As the ridesharing industry shifts toward sustainable unit economics, SoftBank could play a key role in the industry’s upcoming consolidation and maturation.
Uber’s sum-of-parts valuation analysis reveals 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. We estimate that Uber’s non-core assets are worth more than $17 billion. This number includes 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 Uber is currently valued at $32 billion—nearly three times the company’s estimated net revenues for 2018 .
Dara’s got 99 things on his IPO-readiness checklist, but worrying about growth isn’t one. Even with major, back-to-back successes at Uber (including Uber’s Q4:17 summary results, the SoftBank investment, and the Waymo settlement), 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 Uber’s new CEO to build out an IPO-worthy top-management team, including a CFO and a CMO.
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