Uber IPO is going to happen soon but the company has posed a loss of over $1 billion in the first three months of 2019 alone. However, one group of people who are going to benefit the most are the ride-hailing company’s drivers. Uber said each driver could get up to $40,000 each as a “driver appreciation reward” ahead of the company’s initial public offering. With its first IPO due earlier in May, the ride-hailing company is aiming for a valuation of $91.5 billion. If this becomes successful, Uber would become among the top ten US company with the largest U.S. listing in years. Plus: this is also a test of investor appetite for a high-growth but highly unprofitable business.
Here is How Everything Is Going To Play Out
- To qualify for the reward, drivers must have completed at least 2,500 trips, including one this year, as of April 7, and have an account in good standing. Uber said payouts to non-US drivers would be adjusted to reflect different average hourly earnings across regions.
- For US drivers, Uber said eligible US drivers would receive one of six cash rewards based on the number of Uber trips they’ve completed: $100 for making at least 2,500 trips, $500 for at least 5,000 trips, $1,000 for at least 10,000 trips, $10,000 for at least 20,000 trips, $20,000 for at least 30,000 trips, and the largest, $40,000, for at least 40,000 trips.
- About $300 million has been budgeted by the company for more than 1.1 million drivers worldwide for payment on or around Saturday
- In a regulatory filing on April 26, 2019, Uber is going to sell every share on its first day of trading at a price range of $44 to $50. This is not a big deal anyway.
- The company will sell 180 million shares in the offering to raise up to $9 billion.
- Existing shareholders in Uber, holding over 27 million are ready to raise as much as $1.35 billion from those shares. This is going to make them instant multimillionaires if this happens.
- Of the stock being sold in the IPO by existing Uber investors, 6.86 million shares are from Uber co-founders Travis Kalanick and Garrett Camp, meaning the two men could jointly pocket $343 million if the IPO prices at the top end of its current range.
- Already, PayPal, an American online payment solution, is making the first move by agreeing to purchase $500 million of stock in a private placement at the price the IPO eventually settles at.
- Uber management is gearing up for what is going to be the hardest and the most stressful roadshow ever, as they would begin a difficult task of pitching Uber to public markets investors.
- Uber expects to price the IPO on May 9 and then begin trading on the New York Stock Exchange the following day, people familiar with the matter have said.
- A valuation of $91.5 billion is already a handwriting on the wall. In 2018, Uber’s underwriters or investment bankers told Uber they would raise $120 billion when the IPO is ready to go, but then, this sudden adjustment in the valuation brings the company closer to the $76 billion valuation it attained in its last private fundraising round in 2018.
- This adjustment of valuation expectations reflects the poor stock performance of its smaller rival Lyft Inc following its IPO last month. Lyft shares ended trading on Thursday down more than 20 percent from their IPO price amid investor skepticism over its path to profitability. The most probable guess, of course, why Uber’s IPO would be more successful would be that Uber has more market share than Lyft, and would definitely perform better than Lyft.
- Uber’s projected $91.5 billion market capitalization would make it bigger than General Motors (GM), Ford (F), Fiat Chrysler (FCAU), Tesla (TSLA), Honda(HMC), Volkswagen (VOW.Germany), Continental (CON.Germany), the entire U.S. rental car industry, and most of the aftermarket car-parts business. Only Toyota (TM), with a market capitalization of $200 billion, is larger.
Related: Is Uber Really Not A Profit Making Organisation?
The Loss, The Scandal, The Public Outrage
When the road show begins, Uber expects to find a lot of answers to provide to questions posed by potential investors. Such questions would include:
- When will Uber ever make profit? This question is going to be quite depressing for the company. The company reported in the filing, a net loss attributable to the company for the first quarter of 2019 of around $1 billion on sales of roughly $3 billion.
- How will Uber navigate the gradual movement to self-driving vehicles; would Uber’s business model support higher driver costs from minimum wage rules?
- How will Uber handle sexual harassment allegations, a massive data breach that was concealed from regulators, use of illicit software to evade authorities and allegations of bribery overseas, going forward?
“When it comes to Uber, we believe there are still questions over the current car-sharing model, the economics of which are not immediately or obviously attractive for sustainable, long-term investment,” Mark Hargraves, head of Framlington Global Equities, wrote in a note.
Charles Rapulu Udoh
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.