After a turbulent week, Uber experienced an underwhelming stock market debut on Friday, with its shares opening at $42 and dipping as low as $41.06. That figure ticked up back toward $44 throughout the day before a power-hour dive in the final 60 minutes of trading resulted in a closing price of $41.57, a 7.6% decline from Uber's IPO price of $45 per share. That was already at the low end of the company's projected range of $44 to $50 per share, which in turn was below an estimated range of $48 to $55 that Uber had reportedly provided to existing investors.
Asad Hussain, an emerging tech analyst at PitchBook, appeared on Bloomberg TV on Friday to discuss the landmark listing—including why the first-day decline might not be as big a problem as it first appears:
The stock's market cap ended the day at $69.7 billion, a meaningful decline from both a $75.5 billion undiluted IPO valuation and the $76 billion valuation the company reportedly attained with an investment from Toyota last September. Late last year, bankers were proposing that Uber could go public with a valuation as high as $120 billion.
That reduced market cap is also important as it relates to executive compensation. Chief executive Dara Khosrowshahi would reportedly have the option to buy 1.75 million shares in Uber if the company's fully diluted market cap stays at or above $120 billion for 90 consecutive days, stock that would be worth tens of millions of dollars. While that number may have seemed feasible several months ago, when bankers and the public alike were still bullish on the ridehailing IPO race, it may now be out of reach—likely thanks in part to pessimism driven by Lyft's post-IPO swoon. Uber's stock price would need to nearly double for Khosrowshahi to cash in.
While obviously similar, Uber and Lyft present two different propositions to investors, according to Hussain.
"Uber’s IPO valuation multiple is roughly comparable to where Lyft is currently trading," the PitchBook analyst said. "However, given Uber’s slower growth profile and exposure to more competitive, lower-margin international and food delivery markets, we believe Lyft warrants a premium valuation relative to Uber. Lyft and Uber represent two fundamentally different investment propositions—the former represents investing into the US ridesharing industry, while the latter represents an investment into a global, bundled, Mobility-as-a-Service platform."
Interpersonal issuesThe day's IPO drama was not limited to only the bid and ask prices. After weeks of speculation and debate, Uber declined former CEO and current board member Travis Kalanick's request to ring the bell on Friday morning. However, Kalanick still made an appearance: Joined by his father, Donald Kalanick, the controversial co-founder showed up on the NYSE floor Friday morning and "was met with enormous applause," according to New York Times reporter Mike Isaac.
The younger Kalanick and his aggressive attitude were considered instrumental in Uber's rise, but he resigned in June 2017 at the demand of Uber investors after a series of scandals, including severe criticism of Kalanick's handling of sexual harassment issues at the company.
While a first-day decline in share price was surely not what Kalanick and the rest of Uber's shareholders hoped for, much more important for the business will be how it responds in the coming weeks and months, according to Hussain.
"Companies like Uber and Lyft have not been tested during a downturn and it is unclear how resilient their business models would be during a period of contracted consumer spending," Hussain said. "To regain investor confidence, we believe both management teams will need to execute well over the next few quarters while maintaining robust revenue growth and convincing the market that a path to profitability exists."
Featured image via eyfoto/iStock/Getty Images Plus
Want more in-depth Uber coverage? Check out our datagraphic detailing the company's journey to Wall Street.