Ridesharing: Uber, the Next Mega IPO?
March 2, 2018

Ridesharing: Uber, the Next Mega IPO?

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.

Softbank Series G-1 Recap

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.

SoftBank’s investment deal includes a primary investment valuing Uber at $69 billion, and a large purchase of shares from existing Uber investors and employees at a discounted valuation of $48 billion, a 30 percent drop from Uber’s most recent valuation of $68 billion. The investor group, which is co-led by SoftBank and Dragoneer Investment Group and includes Sequoia Capital, has also completed a $1.25 billion investment of fresh cash at the higher valuation, an Uber spokesman said. After its purchase of shares and the Series G-1 round, SoftBank is now the largest shareholder in Uber and as such occupies an influential position at the controversial company.

“Uber has a very bright future under its new leadership. It is now part of a wider SoftBank network ranging from Sprint to WeWork.”

– SoftBank Group Director Rajeev Misra (Jan 2018)
“Uber has a very bright future under its new leadership. It is now part of a wider SoftBank network ranging from Sprint to WeWork.”
– SoftBank Group Director Rajeev Misra (Jan 2018)

The investment was a win-win for both sides: It not only made SoftBank a major player in the ridesharing industry, it also helped Uber move past some of its controversial problems and re-focus on its core business, which has grown despite ongoing legal and management issues.

SoftBank believes that self-driving cars will change the way people travel in the future and that ridesharing companies will reap the benefits of this trend. Its investment in Uber makes SoftBank the largest shareholder in four of the major ridesharing companies across the globe: Uber, DiDi, Ola, and Grab. From a global perspective, these investments have twofold implications:

  • By owning pieces of the various ridesharing players, SoftBank has enormous influence on how this industry develops.
  • If any of the ridesharing companies merge in the future, SoftBank’s investments could lead to it owning a significant stake in a combined ridesharing company.

SoftBank would like Uber to focus on growth in the United States, Europe, Latin America, and Australia, while reducing its involvement in Asia, which has been one of the most costly and competitive regions for the rideshare service. This change in strategy could help Uber achieve profitability more quickly; however, it could also signal a retreat from some of the biggest transportation markets.

Exhibit 1: Softbank’s investments in ridesharing > combined capital raised by several ridesharing startups
Exhibit 1: Softbank’s investments in ridesharing > combined capital raised by several ridesharing startups
Source: SharesPost Research; PitchBook; $ in billions; Uber funding excludes $1 billion invested via DiDi transaction; SoftBank invested amount includes sum total of all ridesharing investments led by SoftBank (including co-investments); $ amounts against each of the ridesharing companies are total capital raised (in billions)

We have updated our Uber waterfall model (accessible at SharesPost.com for registered users) based on the company’s most recent and amended certificate of incorporation, dated Jan. 18, 2018. We estimated the number of common shares based on the most recent publicly reported valuation. Based on this cap table, we have illustrated Uber’s M&A outcome scenario payouts for individual share classes. For a dynamic version of our Uber waterfall model, please log on to your SharesPost account.

“We’re proud to have SoftBank, Dragoneer, and the entire consortium in the Uber family.”

– Uber spokesman, commenting on the SoftBank-led investment in January 2018

“We’re proud to have SoftBank, Dragoneer, and the entire consortium in the Uber family.”

– Uber spokesman, commenting on the SoftBank-led investment in January 2018
Exhibit 2: Uber’s Implied Valuation and Funding Rounds to Date
Exhibit 2: Uber’s Implied Valuation and Funding Rounds to Date
Source: SharesPost Research; PitchBook; $ in millions; Uber funding excludes $1 billion invested via DiDi transaction; based on most recent publicly available certificate of incorporation filed with state of Delaware (dated Jan. 18, 2018)
Exhibit 3: Uber Summary Cap Table
Exhibit 3: Uber Summary Cap Table
Source: SharesPost Research; PitchBook; $ in millions; Uber funding excludes $1 billion invested via DiDi transaction; based on most recent publicly available certificate of incorporation filed with state of Delaware (dated Jan. 18, 2018)
Exhibit 4: Uber’s M&A Outcome Waterfall Model
Exhibit 4: Uber’s M&A Outcome Waterfall Model
Source: Sharespost Research; Pitchbook; $ in millions; Uber funding excludes $1 billion invested via DiDi transaction; Based on most recent publicly available certificate of incorporation filed with state of Delaware (dated Jan 18, 2018)

Although Uber has faced a series of scandals over the past 18 months, the company now appears to have resolved some of its leadership issues. The venture capital firm Benchmark has now agreed to drop its complaint against Uber ex-CEO Travis Kalanick. Kalanick also agreed to give the Uber board majority approval over the board seats he controls, in case he ever needs to fill them again. This deal helps Uber clear a major hurdle as it tries to overcome recent scandals, leadership turmoil, and executive departures. Investors will take a stake of about 17.5 percent in Uber, with SoftBank keeping 15 percent and becoming the company’s largest shareholder. With its global reach, SoftBank can help Uber strike deals with competitors in India and Southeast Asia and better channel Uber’s investments and resources.

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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.

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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.