Ride-hailing firm Uber sees rocky start in stock launch | Business| Economy and finance news from a German perspective | DW | 10.05.2019
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Ride-hailing firm Uber sees rocky start in stock launch

Ride-hailing service Uber went public on Friday, and the event had been billed as one of the largest IPOs in the history of the New York Stock Exchange. The shares did not start the day well.

Watch video 01:50

Ride-hailing App Uber goes public on the NY Stock

Shares of Uber Technologies dropped about 9% in their debut on Friday, recovering later to just under 7% below the initial public offer (IPO).

The stock's opening at $42 per share came despite the company's strategy to price its oversubscribed IPO conservatively to avoid a repeat of Lyft's stock market struggles, following the rival's debut in March of this year.

The disappointing market response needs to be seen against the backdrop of investor skepticism about Uber's ability to turn profitable anytime soon.

About half a year ago, Uber CEO Dara Khosrowshahi was as honest as it can get and more straightforward than the bosses of big companies tend to be.

In the presence of hundreds of students at Stanford University, he railed against all those investors, who had exerted pressure on the firm by criticizing Uber for being in the red.

"If they want a predictable profitable company — go buy a bank," he said, only to add that "we are not going to have predictable profitability."

With his frank statement, Khosrowshahi hits the core of a debate that gained traction traction again as Uber went public. Despite heavy losses and uncertain prospects, the ride-hailing firm moved confidently toward the biggest IPO in five years.

The San Francisco-based company was valued at $82 billion billion (€73 billion), with the issue price fixed at $45 per share on the eve of Friday's IPO.

Impressive expansion rate

People's assessment of Uber's value is primarily based on the company's rapid growth. Over the past decade, the ride-hailing service has managed to collect some $20 billion from investors to advance its very simple business model: Private drivers can register with Uber and use their own cars to get customers from A to B without needing to have an expensive taxi-driving license or extensive training.

Worldwide, Uber arranges more than 15 million rides a day in over 700 cities. Proceeds in 2018 alone amounted to $11.3 billion, marking a 40% surge year on year.

But despite strong growth, one should not turn a blind eye to the company's deficits. Uber, which has set out to revolutionize mobility and transportation, is distinctly unprofitable. It logged losses of $3.7 billion for the 12-month period ending March of this year. That was a record annual loss for the company.

Challenges galore

The sobering figures reflect the difficulties that Uber's otherwise ingenious business model entails. In many regions of the world, the firm has to pony up a lot of money to attract new customers and drivers with special discounts.

Uber drivers staging protests in New York

Uber drivers have been staging protests in New York and elsewhere ahead of the company's IPO on Friday, May 10

In many other places, Uber's ride-hailing services are not allowed because of a strong lobby of taxi drivers. In addition, the United States has seen the rise of a powerful rival, Lyft. The latter has won over many former Uber clients. It has also shown that the ride-hailing market is overrated: Following a very good first day after its IPO in March, Lyft's shares  dropped by 25%.

Uber's success will hinge on how fast it can turn a profit. But Khosrowshahi doesn't exactly brim over with optimism as far as short-term developments are concerned.

"Uber deals for autonomous vehicles, which are going to take over," said Jay Ritter, a professor at the University of Florida. "Labor costs will largely disappear, and with lower costs they will be able to pass the savings through to consumers, and so ride-hailing is going to become cheaper and the market is going to be much bigger."

Seeking hallowed ground?

This is why some experts already see the company entering the Hall of Fame of tech giants. "While there's a lot of wood to chop ahead and many opportunities as well as challenges in Uber's path over the coming years, in our opinion the firm has the potential and transformational opportunity to put itself into this hallowed ground of other tech stalwarts such as Amazon, Apple and Google," Wedbush analysts Ygal Arounian and Daniel Ives said in a letter to their clients.

They pointed out that only 2% of the global population is using Uber, meaning that the growth potential is high. They concluded that the firm's shares would outperform.

Uber drivers themselves had not been amused about the hype surrounding the IPO and had been engaged in strike action in many countries. "Money-mad investors will influence and affect drivers' livelihoods," said Bhairavi Desai, executive director of the New York Taxi Worker Alliance trade union. Uber, she noted, was already saying in its stock exchange prospectus that drivers were getting too much pay and it would aim to reduce labor costs.

Desai is convinced that "with the IPO, Uber's corporate owners are set to make billions, all while drivers are left in poverty and go bankrupt."

Whoever invests in Uber now is placing a bet on the future. It's not clear whether the company will ever become profitable. Nor is it certain that self-driving vehicles will hit the road in large quantities in the near term.


Watch video 02:08

Uber drivers on strike worldwide

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