Complex Made Simple

The $120 billion Uber IPO hype misled GCC investors

The Uber IPO was a first rate fiasco for would-be investors who were fooled by the golden valuation of the hail-a-cab-company

$120 billion (Uber Valuation) just happened to be the benchmark for Uber’s hot new CEO to collect a $100 million bonus payout in his contract The Uber IPO was a spectacular failure and traded as low as a mere $60 billion market cap Uber also committed a cardinal sin – its growth rate plunged from 70% to 18% in 2018 – 19 on the eve of the IPO

By Matein Khalid: Chief Investment Officer and Partner at Asas Capital 

I was offered Uber shares at a valuation of $80 billion as a pre-IPO deal on two separate occasions by (unregulated) deal broker/middlemen who proliferate in the DIFC, my professional watering hole. Broker Bro laughed in my face when I declined his offer and repeated the regional chorus that Uber was a $120 billion sure thing. “Are you majnoon, habibi” (You crazy?) ? He sputtered in rage. I thought about the ancient proverb – do not want something too badly, you may just get it. Broker Bro’s clients have now got their Uber IPO but only at a 40% discount to the market cap they were promised – with a lock up to add insult to injury. How did it all go so horribly wrong?

Goldman Sachs and Morgan Stanley pitched Uber as a $120 billion fair value business as far back as last September. Surprise, surprise – $120 billion just happened to be the benchmark for Uber’s hot new CEO to collect a $100 million bonus payout in his contract. Groupthink? No. Self-serving delusions of grandeur. Sure. Nothing is more profitable in Wall Street investment banking as a $100 billion plus technology IPO. With billions of dollars in fees at stake for the financial gunslingers, who dared to question the Masters of the Universe as they did their magic dance on their excel spread sheets and whose oracular utterings were dutifully repeated ad nauseum by corporate media all over the world. Even the Saudi smart money, led by the PIF sovereign wealth fund, fell for the banker’s nonsense. I did not – and even risked public ridicule in the Gulf by publishing a column titled “the Uber IPO is absurdly overvalued” literally five days before IPO D-Day. 

Related:The Uber IPO is absurdly overvalued on NASDAQ

Related: Uber IPO goes live today, but will it live up to the company’s expectations?

I have utterly lost my respect for Uber CEO Dara Khosrowshahi and CFO Nelson Chai. How could they allow the Wall Street banksters to pitch them such world class valuation idiocy? Did they not realize that the poor shareholders who trusted them would be skinned alive at the IPO, let alone the public? Money does not just talk on Wall Street, it screams at a decibel count that causes sonic booms across the hyper-volatile, daisy chains of global finance. The $120 billion banker pipedream became a tantalizing reality on Uber’s corporate Mount Olympus, where Zeus paradoxically happens to be a Persian named Darius.

As the world learnt to its horror, the Uber IPO was a spectacular failure and traded as low as a mere $60 billion market cap. I was short and remain short the Uber IPO as I believe the shares will fall to $30 and eventually far lower since Uber will never be profitable. I concede never is a very long time and Lord Keynes reminded us that in the long run, we are all dead, though in the short run we get killed by margin calls. My financial calculus flashed a “short this puppy” signal to me since Emperor Darius wears no clothes. So there!

Uber now enjoys the dubious honour of losing more money on its IPO debut than any other company in American history. Funnily, Uber drivers were elated by the humiliation of their millionaire bosses as the IPO flopped. Karmic paybacks are such a drag. 

It seems we in the Gulf are particularly vulnerable to financial manias and hype. The Souk Al-Manakh bubble gutted the Kuwaiti banking system in the early 1980s. I personally witnessed the mob scenes at the Dana Gas IPO in 2005 and the Dubai offplan property Ponzi pyramids that gutted the wealth of so many lambs gleefully fleeced, then led to the slaughter by merchants of leverage and greed. The Pied Piper of global finance in the Gulf is surely Arif Naqvi, the philanthropist-crook, now in a London jail, who conned billions out of the crème de la crème of the Gulf’s family offices, corporates, airlines, banks and, yes, sovereign wealth funds. This was hardly dumb money – or is it?

Why do so many of my buy side peers so unquestioningly accept the “pie in the sky” pitch of the pinstriped showman de jour? Why must the region always succumb to financial tulipmanias, heflas, fiestas, hip hip hurray, “big Daddy knows best” dream merchants?

In any case, Uber’s $120 billion pitch turned out to be its nemesis. Dozens of buy side portfolio managers gave the deal a thumbs down at such a stratospheric, unjustifiable valuation. Uber also committed a cardinal sin – its growth rate plunged from 70% to 18% in 2018 – 19 on the eve of the IPO even as its losses doubled to $1 billion per quarter. Then Softbank dissed Uber by bankrolling its rivals in Latin America.

Related: My bearish call on Uber IPO was a strategic winner – Expect the worst

The Lyft IPO in March was a world class bow wow. By now, it was obvious to me that the Uber IPO was the mother of all speculative bubbles gone wrong. So I did exactly what I recommended in my pre-IPO published article. Got real. Got smart. Got short! F. Scott Fitzgerald, the king of the Jazz Age, said it best – life is lived forward but only understood backwards. Hence this Harry Hindsight cri de coeur.

Who won and who lost in the Uber IPO? The venture capitalists at Benchmark, TPG and Softbank plus early investors made a killing. Uber was valued at $60 million in its series ‘A’ round in 2011 after all.

Related: What has everyone got to say about the ill-fated Uber IPO?

The Uber CEO and CFO collected also won as they grabbed $8 billion in cold hard cash from hapless investors. Goldman and Morgan Stanley skimmed a fortune in underwriting fees despite being so spectacularly wrong. Yet countless investors have hemorrhaged money on Uber in the pre-IPO market and on the New York Stock Exchange. The brand image of Uber has been soiled worldwide. I learnt an invaluable lesson from the Uber IPO – never outsource your thinking to a deal broker, private banker (a broker with attitude and recycled ideas) or an I-banker (a broker with a spreadsheet!). It always ends in tears. Always!