Complex Made Simple

Can Uber’s $120 billion IPO save it from the red?

Uber has been growing at a fast rate, expanding its business and now going for a $120 billion IPO, but its numbers are nowhere near profitbaility.

Uber estimates a confident listing of $120 billion, while analysts put it closer to $100 billion Lyft beat it to the punch, and is expected to complete its offering earlier Right now, Uber and investors seem more interested in growth over profitability

Uber has been biting more than it could chew for many years now, growing uncontrollably while struggling to make a profit. In 2018, it reported $3 billion in Q4 2018 revenues with net losses of $865 million, Tech Crunch reported, continuing its streak of losses.

Now, it seems Uber will officially file for an IPO in April and is pushing for a $120 billion valuation, despite the lack of an inkling of profit in recent years.

Uber is confident in its performance

In an exclusive report by Reuters, based on sources familiar with the matter, Uber will issue its required public disclosure, known as an S-1, in April, and launch its investor roadshow.

“The timing for Uber’s IPO means it will most likely hit public markets soon after Lyft completes its own public offering, which is expected to happen by the end of March, people familiar with the matter said,” Reuters said.

In 2018, Uber was valued at $76 billion, and they believe an IPO would push this number up to $120 billion. Analysts, however, had had more conservative estimates, putting a potential valuation closer to $100 billion.

Lyft, Uber’s fierce rival, is seeking a valuation of $20 billion to $25 billion, up from its $15 billion valuation as a private company, Reuters said. The younger rival beat Uber to the punch earlier this month, and is expected to finalize its papers by the end of March.

Profit is a secondary concern?

Like Uber, “the two things everyone knows about Lyft are that it is growing very fast and losing a lot of money,” VentureBeat quipped. “Bulls will argue that, even if profits aren’t coming yet, Lyft’s growth puts it on the path to profitability.”

Uber seems to be operating with a similar mentality.

“Any investment in Uber is obviously a long-term bet on the future, like someone who invested in Amazon in the early days,” Bradley Tusk, an early Uber investor who signed on to help the company surmount political and regulatory barriers in 2011, told Tech Crunch. “One thing [Uber chief executive officer Dara Khosrowshahi] is doing well is really expanding Uber into a mobility company as opposed to just a ride-hailing company.”

This line of thinking has been running rampant in the US, where a trend of profit-less businesses filing for IPOs can be observed. After all, Amazon set this trend, where it remained in the red for many years before becoming the success it is today. In Q4 2018, the e-commerce company posted a record $3 billion in net income for the quarter.

“In 2018, 81% of US companies were unprofitable in the year leading up to their public offerings, according to data from Jay Ritter, an IPO specialist and finance professor at the University of Florida,” news site Recode reported. “Some 84% of tech companies that went public in 2018 were in the red.”

Essentially, “the rise in unprofitable IPOs reflects the general preference in both public and private markets for growth over profitability,” Paul Condra, lead analyst of emerging technologies at startup research firm PitchBook, told Recode.

Saudi Arabia’s Public Investment Fund seems to hold faith in Uber after all, as the Kingdom invested $3.5 billion in 2016, and remains a major shareholder.

This month, a Bloomberg report surfaced stating that Uber is finally in advanced discussions to obtain its Middle Eastern rival Careem, after several months of ‘will they, won’t they.’ Careem could be valued as much as $3 billion.

In a nutshell, Uber thinks its growth will help it outpace its losses all the way to the promised land of profitability.

One day, Uber, one day.