Tech IPOs 2019: Should You Invest In Uber When It Goes Public?
Uber is among the most highly-anticipated tech IPOs in 2019. It is the most valuable venture-backed startup in the world.
Will Uber IPO go down in history as one of the most successful IPOs…or most spectacular disaster in tech history?
More importantly, should you invest in Uber when it goes public? To help make up your mind, read on to find out three reasons why you should be excited. Also, there are three reasons to be extra cautious.
Three Reasons Why You Should Be Excited
#1 Uber is well diversified and has heavily invested in the future of transportation
Aspiring to be the ‘Amazon of Transportation’, Uber has positioned itself well to offer beyond ridesharing service. In addition, the company offers:
- Electric bicycle and scooter sharing through its subsidiary JUMP Bikes;
- Freight shipping through Uber Freight;
- Meal delivery service through Uber Eats (which has the second largest market share in the US food delivery market, right behind the leader Grubhub).
Besides, Uber has heavily invested in self driving car research, hoping to take drivers out of the equation in ridesharing. Even so, the wildly ambitious company doesn’t stop there. Through Uber Elevate, it plans to launch on-demand flying taxi service by 2023.
On top of everything, Uber received highly optimistic IPO proposals from Goldman Sachs and Morgan Stanley. The proposal could value the company as high as $120 billion. Nearly twice the valuation from its latest fundraising round.
#2 Uber is one of the most well-funded startups in Silicon Valley
Uber is the most valuable venture-backed company in the world. All the institutional investors and venture capital firms want a piece of Uber. ccording to Crunchbase, the company has raised a total of $24.2 billion in funding over 21 rounds. SoftBank is the largest investor and shareholder of Uber. Benchmark Capital, GV (Google Ventures), and Lowercase Capital respectively hold substantial stakes in Uber.
A venture capitalist even regretted passing on one of the biggest investment opportunities in Silicon Valley. According to Fortune, John Greathouse, an advisory partner of Rincon Venture Partners, “passed on Uber’s seed round and refused to listen to founder Travis Kalanick’s pitch”.
“Note to my loving wife: The next time a friend knocks me over the head with a billion-dollar opportunity, I’m going to listen. Promise,” he said.
The automaker Toyota is among the latest investors to invest $500 million in Uber for self driving car research. All those big name VC firms and corporate investors that had poured billions into Uber couldn’t possibly be wrong. Or could they?
#3 With Dara Khosrowshahi at the helm, Uber is getting back on top
Founded Uber with Garrett Camp in 2009, Travis Kalanick eventually resigned as CEO in June 2017. His high-profile resignation came after months of chaos and scandals at Uber. However, Dara Khosrowshahi, the former CEO of Expedia, soon came on board as the new CEO.
For over a year, reshaping the bad-boy culture and addressing sexual harassment issues were among the new CEO’s top agendas. Besides, he also dumped unprofitable overseas operations and focused on steering Uber back on track. Dara even has high hopes and determination to transform Uber into the ‘Amazon of Transportation’. Self driving car and flying taxi research are the keys to the transformation.
Under Dara Khosrowshahi’s leadership, Uber Eats has become the fastest growing meal delivery in the US, according to Second Measure data. The company is happy with the performance of Uber Eats, and it is looking to expand in EMEA region.
Could the much mature, nicer CEO of Uber be trusted to lead the company out of the woods and get back on top with a successful IPO in 2019? Share you think in the comment section below!
Three Reasons Why You Should Be Extra Cautious
#1 Uber’s scandals and issues are far from over yet
2016 was a bad, rough year for Uber. So was 2017. No surprise there. If you regularly follow tech news, you can’t not notice it. Uber’s never-ending scandals and PR disasters are well documented in the mainstream media. So I will not bore you with a detailed timeline. It will not fit in this blog post anyways.
In case you didn’t pay attention, here’s a recap of Uber’s scandals and PR nightmares: the notorious Travis Kalanick scandals (yelling at a driver, ‘Boob-er’ backlash, eventual stepping down), aggressive and often controversial strategies against its rivals, sexual harassment accusations (latest being its Head of Corporate Development’s resignation in late October), cybersecurity breach, regulatory scuffles. And the list goes on.
Although with Dara Khosrowshahi at the helm steering Uber back on track and doubling down on its quest to be the ‘Amazon of Transportation’, Uber’s scandals and issues are far from over yet. And they may very well make the investment of Uber highly risky.
#2 Existential crisis and intense competitions make Uber’s businesses highly risky
Uber still faces intense competitions from Lyft in the US and from global rivals around the world. To make matters worse, its core ridesharing service faces an “existential crisis”. Fully autonomous vehicles could render Uber’s human-tasked ridesharing service obsolete.
That’s why Uber decided to disrupt itself by investing in self driving car research before it is too late. But the company isn’t alone in making fully autonomous vehicles a reality. Its progress in self driving research is not the fastest, either. For instance, the industry leader Waymo already has an on-going Early Rider Program in Phoenix, AZ.
On the other hand, Uber had halted its self driving car testing on public roads eight months ago. It’s due to a fatal accident involving a pedestrian back in March. However, days ago Forbes just reported that Uber will resume testing self driving cars on public roads.
In addition to Waymo, Uber has to compete with GM, Daimler, Zoox, Renault Nissan, BMW, and many more.
‘Will Uber’s effort in self driving car research bear fruit?’ is a big question investors should consider. Even if the company’s research bears fruit, this might happen:
“Tesla will operate its own ride-hailing services and compete directly with Uber and Lyft, obviously,” Tesla founder and CEO Elon Musk said recently on a third quarter earnings call, according to CNBC.
Similarly, in Uber’s quest to make flying taxis a reality, the company faces competitions from Kitty Hawk, Ehang, Lilium, Airbus, Joby Aviation, Volocopter. Just to name a few. All of them want to be the first to commercialize and capitalize on flying taxis. Will Uber get there first with its five experienced partners?
#3 Uber is not profitable yet, and it’s not going to be anytime soon
Heck, it’s an understatement to say Uber is not profitable yet. Uber loses money. Like a lot. According to the Wall Street Journal, Uber’s net loss in Q2’2018 alone is $891 million. Yep, all of that in just a quarter. But that is better than its record breaking $1.5 billion losses in the third quarter of 2017.
To put things into perspective, the ride hailing giant lost $4.5 billion in all of 2017. For comparison, Uber lost $2.8 billion in all of 2016. In all of its nine years, Uber spent a total amount of $10.7 billion.
Those are mind-boggling figures, but the businesses of Uber are not exactly cheap, too. Uber is burning through cash to make flying taxis a reality by 2020. Self driving car research is a cash burner too.
However, will Uber really be the ‘Amazon of transportation’, like Amazon taking more than a decade to be staggeringly profitable? Is Uber really dead set on the long term?
So if you want to jump on the bandwagon of investing in Uber, you should bear in mind that the company is not going to be profitable anytime soon. It may be another three or five years, but who knows for sure?