Ready to rumble? Comparisons for the Uber IPO

Stacking up to the competition

2019 is expected to be a huge year for tech IPOs with the likes of Deliveroo, WeWork, Slack, Airbnb and Palantir expected to go public. Other tech companies like Pinterest or Uber rival Lyft have already floated their offer. As some of these companies haven’t went public yet we can’t compare their post IPO valuation. However, there is value in finding similarities between the ways they were valued in private stock transactions. Uber’s private valuation is larger than that of Airbnb and Palantir combined. And its IPO size is 5 times that of Pinterest and Zoom’s IPO combined.

Large private valuations aren’t a guarantee of a successful offering that shoots the fresh stock’s price up. However, it can be an early indicator of investor interest in the business.

At the end of the day, there are many factors that go into how a stock will perform at its IPO. Initially, the price moves a lot due to all the new and old investors buying into or selling their shares. This volatility is exacerbated when a company’s flotation is highly anticipated, which is definitely the case for Uber.

Moreover, performance at IPO isn’t a definitive indicator of the strength of a company. Stock performance in general isn’t either. There are a bunch of great companies out there that are undervalued, as there are a lot of others which are overpriced compared to their fundamentals. Wouldn’t be too many opportunities to make money off the market if it were any different.

For example, Amazon’s stock managed to get back to its all time high of $111 from 1999 more than ten years later in October of 2009. Today, the price sits at $1923, putting Amazon at over $1 trillion market cap. All this for a company which was famously unprofitable for many years.

A different example is Snapchat’s IPO performance. The company floated on the 2^nd of March 2017, with its all time high being close to $30. Today, in April of 2019, the price is trading at almost $12 from its all time low of $4.8 per share back in December 2018.

All these factors and many more will account specifically on how the Uber IPO will perform. Whether it will exceed expectations or be dragged down by its own hype is an answer for another day, sometime in May.

Of mice and men…and cars…and tech – Uber vs. Lyft

The best possible comparison we can do for Uber and its impending IPO at this time is with its main US rival Lyft. Why? Easy: They are direct competitors, both are ride-sharing apps, they have similar customer acquisition and marketing strategies, both invest in future tech like autonomous driving and their prices are in the same range. Moreover, when Uber introduced a driver promotion, Lyft made sure to do the same. And last but not least, both are going public at roughly the same time, with Lyft already being public as of March 28^th 2019.

Now, apples and oranges may both be fruit but there is a swath of differences between them. Just like the two ride-sharing apps. While Lyft operates in the US and Canada, Uber operates in 65 countries. Lyft has a more hippie-friendly culture, while Uber is more business-centric. Uber employs around 20,000 people globally, while Lyft has 4,500.

Uber’s market share in the US is around 69% while Lyft’s is about 30%, with the remaining 1% or so being other ride-sharing companies. If in a couple of years Uber manages to completely surpass Lyft or outperforming it out of the market would mean that Uber would have a monopoly on ride-sharing. But while Uber is definitely ahead in market share, momentum does seem to be on Lyft’s side.

On the financial side, Uber is also ahead of its competition, having reported revenues of $2.95 billion in Q3 2018 against its pinker alternative’s $563 million. However, Lyft does have an advantage in this area, in that of its losses are proportionally smaller.

While Uber has shown a slowdown in growth, it does have roughly four times the revenue. But as revenue is vanity, profit is sanity and cash flow is reality, money in the bank isn’t everything, as Lyft’s revenue is growing twice as fast as Uber’s.

Last but not least, Lyft’s recent IPO debacle could be a foreshadowing for an even bigger flop for Uber. The IPO’s performance was well below expectations and that might have dampened enthusiasm come Uber’s turn to issue. Nevertheless, we could continue comparing the two rivals in anything.

But what will mostly determine Uber’s IPO will be Uber itself. And for any smart investor, it’s sometimes as easy as making a list of pros and cons.