Uber IPO – The Next Tech Unicorn

“In fact, when I joined Uber as CEO, many people asked me why I would leave the stability of my previous job [CEO of Expedia] for one that was anything but. My answer was simple: Uber is a once-in-a-generation company, and the opportunity ahead of it is enormous.”

“Dara Khosrowshahi (CEO), Former CEO of Expedia”

After recording US$11.3bn in revenue last year, Uber will embark on a US$100bn IPO as it looks to fuel an unstoppable growth trajectory that has already established its dominant position in the market. The global ride-share company has completely transformed the taxi transport industry, with 91m active users in 63 countries and 700+ cities.

Ahead of Uber’s US$10bn raise, it’s worth noting some of the biggest and best-performing stocks started as IPOs. Consider Amazon in 1997, or Facebook in 2012, which listed at $18 and $38 respectively. Fast forward to today, Amazon’s shares recently topped US$2000 as it became only the second company to surpass a trillion dollar market cap. A $1000 investment would be worth over US$1.3m. Meanwhile, Facebook stock is 900% higher. Now, it’s Uber’s turn to create history, and no longer will you be shut out from this coveted opportunity, everyone can come along for the ride.

The opportunity that’s finally here

After years of speculation, an Uber IPO is finally on the horizon after its prospectus was released in early April. The ride-share company is set to follow hot on the heels of Lyft (LYFT), which recently listed on the Nasdaq amidst considerable publicity and fanfare, despite its significantly smaller scale.

While there is no shortage of prominent tech unicorns hoping to IPO, many have bided their time by opting for venture capital to stoke their growth aspirations. Few come close to matching the parabolic growth profile of Uber, which headlines this list as one of the biggest and most sought-after listings the market has ever seen.

Evolution of the Uber business model

Starting in 2009 as a way to share and reduce the cost of direct commercial transportation, the taxi disruptor app has grown into the world’s largest ride-sharing business. However, Uber has also transformed into a more diverse mobility suite in recent years, affording it multiple revenue sources.

As a snapshot, Uber looks as follows:

• Operations in 63 countries and 700+ cities, whereas Lyft only operates in North America
• Over 5.2bn rides completed across all services in 2018, well ahead of Lyft’s 619m
• 50bn bookings in 2018 across all divisions, versus just under 20bn in 2016
• 91m active users per month (2018), which compares with 68m users a year earlier, and the 30.7m passengers registered with Lyft
• 3% of US ride-share spending, more than double its next closest competitor
• The broadest mobility services among peers, including food delivery (Uber Eats), bike and scooter sharing, plus on-demand ground transportation (Uber Freight)
• Heavily invested in growth areas, such as autonomous driving testing and rides for patients of health care agencies (Uber Health)
• More than US$3bn in acquisitions in the last 12 months, including competitors

Details surrounding the offer

Uber’s IPO is expected to be one of the biggest tech listings in history, closely behind the likes of Alibaba (BABA) and comparable to Facebook (FB).

At this stage a valuation or price guide has not been specified. It is expected that as much as US$10bn will be raised, while the company could fetch a valuation in the vicinity of US$100bn. By comparison, Lyft issued 32.5m shares at $72 each, for a valuation around US$24bn.

The company will list on the NYSE under the ticker ‘’UBER”, targeting May 10. The deal is being led by Morgan Stanley and Goldman Sachs, with support from another 27 investment banks.

The company attracted widespread interest when valued above US$70bn in August 2018.

Corporate structure and control

Some of the most highly regarded names are involved in the corporate structure of Uber. In October 2018 this spanned 96 unique businesses and individuals.

Over US$22bn has been raised by Uber to date, more than any other private company valued above US$1bn. Prominent investors include:

• Japanese venture fund SoftBank Group (16.3%)
• Benchmark Capital Partners (11%)
• Fidelity Investments
• Toyota Motor Company ($500m, August 2018)
• Amazon founder and CEO Jeff Bezos
• Public Investment Fund of Saudi Arabia (5.4%)
• Alphabet Inc. (5.2%)
• Tencent Holdings

Travis Kalanick and Garrett Camp, Uber co-founders, still retain 8.6% and 6% ownership.

IPO investors will share equal voting rights with existing investors, with one vote per share. Unlike most high-profile IPOs, including Lyft which offered one vote for every twenty among its founders, Uber will not pursue a dual-class share structure.

Uber’s Board consists of over 12 members, including:

• Dara Khosrowshahi (CEO), Former CEO of Expedia
• Ronald Sugar (Chairperson), Former Chair and CEO of Northrop Grumman
• Arianna Huffington, Founder of The Huffington Post
• Ursula Burns, Chair and CEO of VEON
• John Thain, Former Chair and CEO of CIT Group

Under the hood, Uber’s financials

The effects of scale have started to show in Uber’s growth, which has been nothing short of rapid.

Revenue has grown from around US$4bn in 2016 to US$11.3bn in 2018. In comparison, Lyft achieved US$2.2bn last year. Among this is US$757m from Uber Eats (versus US$103m in 2016) and US$125m from Uber Freight in Q4 alone.

Uber significantly reduced its EBITDA loss to US$1.8bn last year, a sharp improvement on 2017 where it lost US$4bn, and 2016 where it lost US$2.5bn. The company sold assets and exited losing markets in Asia and Russia, which pared losses further.

As part of an aggressive growth strategy the business has invested heavily into longer-term initiatives such as autonomous driving and bike sharing. Expenses in 2018 totalled US$14bn, 19% higher than 2017, and around double that of 2016.

The company had US$6.4bn on hand by the end of last year, with US$6.9bn of debt classified as long-term.

Things to look out for

Uber expects operating expenses to increase significantly in the foreseeable future, however this is part of the company’s strategy to leverage scale and pursue differentiating streams of revenue.

Competition remains noteworthy in numerous markets, although Uber is responding strategically by exiting overly competitive markets, acquiring competitors like Careem (the leading ride-share app in Middle East and North Africa), plus increasing driver incentives and lowering customer fares to regain market share.

The classification of drivers as contractors ensures that the company does not have to pay other benefits and rights that would otherwise need to be honoured if the drivers were deemed to be employees. In jurisdictions like Australia and the US this has been supported by law.

Industry challenges such as autonomous vehicles could alter demand for Uber’s ride-share service, albeit the company has responded by investing in self-driving research and cabs, as well as diversifying its revenue stream through the likes of scooters, bikes and service-oriented transport services.

The Upshot

Uber is making its aspirational goals to redefine the mobility services industry very clear. CEO Dara Khosrowshahi summed this up as follows:

“In fact, when I joined Uber as CEO, many people asked me why I would leave the stability of my previous job [CEO of Expedia] for one that was anything but. My answer was simple: Uber is a once-in-a-generation company, and the opportunity ahead of it is enormous.”

The IPO will come to market with significant backing courtesy of numerous high-profile investors on the register, a strong and experienced Board of directors, plus its co-founders still retaining a large stake. A long list of premier investment banks will support the deal, with significant interest in each and every prior funding round, including from the likes of SoftBank and Toyota.

Uber has recorded parabolic growth in the last two years. It increased bookings by more than 150% to 50bn, and grew revenue by 190% to US$11.3bn. Active users have grown 85% in the same period to 91m as the company expands its presence around the world and even acquires some of its largest competitors.

The company has also diversified its operations and invested heavily to expand its revenue stream into other mobility areas like food and freight delivery, bike and scooter sharing, plus self-driving vehicles – all of which offer momentous upside for a disruptor like Uber.

Combined with a fundamentally sound base as the pre-eminent global ride-share provider, Uber is poised for significant future growth and will hope to replicate the success of IPO tech giants like Amazon and Facebook.