The Strategist

What to expect from Uber and Lyft’s IPOs?

10/23/2018 - 15:38

Uber Technologies Inc. and Lyft Inc. are actively preparing to enter the stock exchange next year. The rival companies will compete to get money from the same investors, Bloomberg writes.

Leading Wall Street banks are fighting over placing Uber’s share. So far, the favorites are Morgan Stanley and Goldman Sachs. At the moment, the financial conglomerates estimate Uber at $ 120 billion. 

In turn, Uber’s competitor, Lyft, chose JPMorgan Chase & Co. along with Credit Suisse Group AG and Jefferies Financial Group Inc. to enter the stock exchange. According to experts, the company plans to hold an initial public offering in the first half of next year. Banks valued Lyft in the range of $ 18 billion to 30 billion, the price target of $ 25 billion. The final rating of the second largest taxi search company in the United States will for the most part be based on comparison with GrubHub, a startup already listed on the stock exchange and leading in its industry (food delivery).

Representatives of Uber, Lyft, JPMorgan, Credit Suisse, Jefferies, Morgan Stanley and Goldman Sachs declined to comment.

Uber's IPO is among one of the most anticipated on Wall Street and in Silicon Valley. Earlier, Uber CEO Dara Khosrowshahi publicly announced his intention to conduct an initial public offering of the company in the second half of 2019. Nevertheless, some are expecting a change in the listing date since now Khosrowshahi wants the company to go public already in the first half of next year.

If Uber rearranges everything, the company's competition with Lyft, which plans to hold the IPO in March or April 2019, will move to a new level. Earlier, two more opponents found themselves in a similar situation - Chinese firms Alibaba Group Holding Ltd. and Inc., working in the field of electronic commerce. Their placement also took place with a difference of only a few months.
Before Uber enters the stock exchange, it needs to resolve several issues. Among them is the fact that a new financial director has recently appeared in the company. The search for a candidate for this position has been going on since 2015, which is what investors were concerned about. In addition, since its founding, the company has already lost $ 11 billion, and the volume of the funds spent continues to grow.

In recent days, Uber has distributed documents relating to the possible issue of bonds. Potential investors were informed that the company was not expecting a profit for at least three years. Judging by the forecasts, the service revenue this year will reach $ 10 to 11 billion, compared with less than 8 billion last year.

In the third quarter, Lyft's revenue was $ 563 million, compared with $ 300 million in the same period a year earlier, sources said. At the same time, the loss increased to $ 254 million over the specified period compared with $ 195 million last year. The cost of new research and development, along with the cost of hiring staff, contributed to the increase in losses.

Investors believe that the value of Lyft should be measured on the basis of gross profit. The company's profit in the III quarter rose to $ 256 million compared with $ 114 million for the same period last year. In June, representatives of Lyft reported that the company was valued at $ 15.1 billion in a closed investment round.

For now, the largest IPO is Alibaba's initial offer with $ 25 billion collected, held in 2014. Perhaps the SoftBank Group will beat the record. The corporation plans to hold an IPO for its Japanese division, which specializes in mobile devices. According to sources, SoftBank has already turned to advisors for help in selling about a third of the shares, wanting to get an estimate of the business division of more than $ 80 billion.

In early 2018, SoftBank became the largest shareholder of Uber. The company also attracted external financing in August 2018, when Toyota invested $ 500 million in it. Currently, SoftBank, the largest shareholder in Uber, has gained 5.8% of shares in Tokyo. 

If the estimate of Uber is close to the planned $ 120 billion, the initial proposal will become truly ambitious. But the situation may be completely different.

As history shows, cost estimates for the largest private technology companies may change dramatically in the months before the IPO. Five months before the initial public offering of Snap Inc., the company was valued at $ 40 billion, but ultimately the figure stood at only $ 20 billion.

Another example is Chinese smartphone maker Xiaomi Corp. At the beginning of trading, the company raised $ 4.72 billion, although, according to Bloomberg, it was expected to attract at least $ 10 billion.