Is an Uber IPO on the Horizon?

in Market Commentary by

Market Digest – Week Ending 06/02/2017
Following the holiday weekend, U.S. and international stocks were relatively flat amidst myriad political news and economic data points. Equities subsequently rebounded Thursday with ADP reporting stronger than expected private payroll figures and oil stabilizing after recent declines. Gains continued into Friday despite mixed data on U.S. labor, where hiring slowed but the unemployment rate dropped to a 16-year low. Bonds and gold also ended the week higher.

Weekly Returns:
S&P 500: 2,439 (+1.0%)
FTSE All-World ex-US: (+1.3%)
US 10 Year Treasury Yield: 2.15% (-0.10%)
Gold: $1,278 (+0.9%)
EUR/USD: $1.128 (+1.0%)

Major Events:

  • Monday – Memorial Day
  • Tuesday – Mike Dubke resigned from his post as the President’s communications director after three months on the job
  • Wednesday – The U.S. Federal Reserve released its most recent beige book, pointing out that economic growth slowed in a select number of districts nationwide
  • Thursday – Uber posted a $708-million dollar loss, while simultaneously announcing the departure of its head of finance
  • Thursday – PPG dropped its $27.6-billion takeover bid for Dutch paint giant Akzo Nobel
  • Thursday – The president officially announced he is withdrawing the United States from the Paris climate accord
  • Friday – While hiring slowed, the U.S. unemployment rate fell to 4.3%, a 16 year low
  • Our take:
    Uber this week reported a net loss of $708 million for the first quarter, an improvement from previous three months. According to the Wall Street Journal article reporting the results, an Uber spokesman claimed “the narrowing of our losses in the first quarter puts us on a good trajectory towards profitability.” Clearly the statement, and the reporting of results (remember, Uber is private and doesn’t have to disclose anything), are aimed at fueling enthusiasm for a future IPO. When will that be? At this point it’s anyone’s guess. Rumors have circulated for years about an IPO, and so far the company remains private.
    But if they were to go public, how would they be welcomed by the market? After all, the firm has lost a number of high-profile employees of late, continues to face controversy over workplace discrimination, and is tangled up in a lawsuit with Google over self-driving car technology. So would the stock soar upon its debut, or would it be the equivalent of a public market “down round”? If the latter, it certainly wouldn’t be the first time a high profile IPO was met with tepid demand.

    Which brings up a good question: do they need to go public? Clearly, most of the firm’s investors want an eventual liquidity event, as does any employee sitting on stock options. But what’s the rush? In the past, companies with strong business models would have to tap public markets for capital so they could continue to expand and bolster growth. Nowadays that’s not as necessary. VC funding is so cheap and abundant, firms can remain private for much longer and still fuel their many growth initiatives. Maybe that’s why global IPOs have been on a downward trend in recent years.

    Suffice it to say, with $7.2 billion in cash, Uber can afford to wait for a more opportune time to IPO—perhaps when recent events have blown over and the firm improves its public image. But others might not be so lucky. If and when the VC spigot turns off and the music stops, a number of privately funded firms may find themselves without a chair.

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    Brendan Erne, CFA
    Brendan Erne serves as the Portfolio Management Team Leader with Personal Capital Advisors. He has over 15 years of industry experience, spanning almost all levels of the investment process, including several years at Fisher Investments as an equity analyst covering the Technology and Telecommunications sectors. He also co-managed a large cap growth portfolio and co-authored Fisher Investments on Technology, published by John Wiley & Sons. Brendan is a CFA charterholder.
    Brendan Erne, CFA

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