Investors like investing in investments that make money. If only someone would have told Uber. It’s not everyday you go public, most companies will never reach that milestone and even fewer people will get to ring that cool bell at the NYSE. For Uber I’m sure it’s a day they’d like to forget.
$10 billion is an impressive number, it’s even more impressive when it’s a loss — and that’s exactly what Uber lost in the three years between 2016 and 2019. Clearly this was enough to shake investors as Morgan Stanley (the underwriter for this IPO) decided to price shares at $45 — significantly towards the bottom of their $44-$50 range.
Well, you can’t win them all, and Morgan Stanley knew they were going to lose no matter what. Uber was able to raise $8.1 billion through their IPO but at the sacrifice of investor confidence. This is one reason shares fell 7.6% on their first day of trading, the other being Uber is worth only what the open market thinks it’s worth. At the end of Friday investors clearly though Uber was worth closer to $69 billion, a far cry from the banks which floated the idea of a $90 billion valuation and a few investors and analysts calling for $120 billion.
Uber, much like the time in which it was created doesn’t make sense. Investors were throwing money at startups because they would lose money if they weren’t spending it. Startups were encouraged to grow quickly and engage in price wars. Most of all responsibility was something to shed — we see this through a lack of asset ownership at Uber, along with businesses like Lyft and Airbnb.
But they never did figure out that profitability part of the equation. They’ve said margins will increase when they can use autonomous vehicles — however that’s also in doubt because that doesn’t properly factor in the additional costs of maintaining a fleet and vehicle maintenance. Uber seems to find itself in the same place the US railroad industry found itself in over a century ago. Both have an extensive network and the infrastructure to move things around, but passengers just aren’t where the money is.
There’s a reason the US rail network is so focused on freight — it’s what makes money. We all remember the railroads for their idealized passenger service but that didn’t make any money for business like the Pennsylvania Railroad. Ultimately a drop in freight and passenger service led to their collapse — a realization that should hang over management at Uber. It’s one this to throw away your margins in the pursuit of growth, it’s something else to realize they were never going to materialize in the first place. Right now Uber has the network and infrastructure to offer courier services around the world, what they haven’t shown is whether they have something profitable to transport.