Uber IPO: should you invest?

The filing has revealed further information about Uber’s much discussed finances.

Last week Uber, the ride-hailing app, filed for public listing. After rumours of a valuation totalling $120 billion, Uber has settled on a slightly lower number: $100 billion.

At this stage it is unclear when exactly Uber will IPO, but the firm is expected to list on the US market at some point this year.

Should you invest?

The filing has revealed further information about Uber’s much discussed finances. As has been known for years, Uber is – depending on how your measure it – a loss making company. Between 2014 and 2018 the company lost a total of $6.8 billion.

In 2018 the company suffered an adjusted loss of $1.85 billion, under EBITDA, which is a measure of a company’s operating performance.

While young companies in their growth stage are often expected to suffer losses Uber has been losing money for almost a decade now.

At the same time, Uber looks likely to face rising costs as the company is forced to provide better employment terms to drivers in certain legal jurisdictions.

Lyft, Uber’s closest rival in North America, also recently listed in the US. Despite an initial lift off in price after going public the share price has since sunk on the back of similar fears concerning profitability in both the short and long term.  

Ben Barringer, equity research analyst at Quilter Cheviot is unequivocal about his view on Uber: “This is one public offering investors should stay away from.”

Barringer emphasises Uber’s losses and growing costs. With Uber’s rising costs primarily the result of increasing driver compensation, there is little scope to cut back costs, he argues.

At the same time the increasingly competitive ride-hailing market means raising prices for passengers is not much of a possibility. Raising prices could see users migrate to a rival app.

For these reasons Barringer says: “The valuation looks too aggressive and we think overvalues the company.”

The risk for investors is also that its growth years are now behind it. As we have pointed out before, companies are staying private for longer. Those buying in at IPO risk buying into an already relatively mature company with rich valuations.

IPOs have become less a function of companies attempting to raise cash to grow and more a mechanism for founders and early investors to cash out of an already mature business.

 

Subscribe to Money Observer Magazine

Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.

Subscribe now

Add new comment