Uber goes public next Friday. It will be a spectacle – but private investors should be very careful.
AThe stock market event of the year is taking place next Friday, and it contains all the ingredients that a successful spectacle in the world of finance needs: a groundbreaking business idea, a scandal-ridden founder and money, a lot of money. $ 91.5 billion to be precise.
If everything goes as planned, Uber, commonly referred to as the transportation operator, will be worth exactly that when it goes public. Wall Street has not seen anything similar since Alibaba’s IPO in 2014. Even in the worst case, Uber would still be valued at around $ 80 billion based on the aforementioned price range for the stock, which begs the question: Is the stock market exaggerating again? Or is Uber really a company that only happens once in a generation, as Uber boss Dara Khosrowshahi claims?
What can Uber offer ordinary investors?
A definitive answer – that is what the future looks like – cannot be given today. But there is evidence. When daredevil Travis Kalanick founded Uber with a colleague in 2009, the idea behind it was as simple as it was ingenious. Why not take advantage of the fact, they thought, that a large part of humanity can drive more or less passably? Drivers of private cars can transport people from A to B just like taxis, just cheaper, was the basic idea. An app brings drivers and customers together, and Uber and the drivers share the income from a trip. The idea was well received: initially mainly in America, but increasingly also in the rest of the world. You have 90 million customers in more than 700 cities, writes Uber in the prospectus.
Well-known investors like the sovereign wealth fund of Saudi Arabia or the Japanese Softbank (see grafic) entered with billions. They see the IPO as an opportunity to monetize a certain amount of their shares. Uber founder Kalanick, who holds almost nine percent of the company’s shares, would also benefit in particular. But what outlook can Uber offer ordinary shareholders who can buy the stock from next Friday?
If you soberly weigh the advantages and disadvantages against each other, the disadvantages are currently the most obvious. This has to do with the stock exchange prospectus, which for the first time provides detailed figures on the status of transactions. Accordingly, Uber made an operating loss of around three billion dollars last year. This reflects the difficulties that the at first glance ingenious business model brings with it: Uber has to spend a lot of money in many areas of the world in order to win new drivers and new customers with special discounts.
In the United States, Uber has also grown up a serious competitor with Lyft, which went public at the end of March. Lyft has also benefited from Uber founder Kalanick’s prone to public failures at times. This, as well as a corporate culture described as misogynistic, ultimately led to the founder’s withdrawal from the top of the company, but according to Uber, it cost hundreds of thousands of customers.
However, these are snapshots. The most important question for potential shareholders is another: Will the company make adequate profits in the future, even if it is not yet able to do so at the moment? At least the quarrels with many European countries in which the taxi lobby has staunchly defended its monopoly now that the more conciliatory Khosrowshahi has been Uber’s CEO seem to be decreasing.
In the opinion of many experts, however, the future of Uber will not be decided by dealing with markets in which Uber has so far been prohibited from using private drivers as taxi substitutes. Not even in the food delivery business that Uber has been offering for some time. But in the field of self-driving cars. “Uber must strive for a leading position in the world in autonomous driving,” says fund manager Martin Hermann from the private bank Berenberg. If self-driving cars were to prevail in the future, Uber could save enormous costs. After all, the company has so far had to share the income from a trip with the drivers.
On the other hand, the new technology also poses a threat to Uber’s business model. Because although Uber is investing a lot of money in the development of such vehicles, Google and electric car manufacturer Tesla are stronger competitors. After a fatal accident with a self-driving Uber car in 2018, the company fell behind. The bottom line for investors: There is a lot to be said for viewing the Uber stock market spectacle from a safe distance first.