Uber may go public with a valuation higher than many of the other S&P 500 companies like GE, Morgan Stanley, Caterpillar, etc. The company is looking for an initial public offering listing price on New York Stock Exchange of anywhere between $44 to $50 which means Uber will be valued at $90 billion making it bigger than its peers. It will also beat the market capitalization of BlackRock and Morgan Stanley which were at $74 billion and $81 billion respectively.
Market valuations are based on their earning potential in the future, and hence most of the tech companies including Pinterest, Lyft, etc. were all priced higher than their market value. Moreover, historically no tech company before its IPO has made profits. Take the case of Lyft which was listed in April and had suffered a loss of $911 million last year, companies like Twitter, Spotify, etc. all were making losses before being listed. The same trend continues with the ride-hailing company Uber too. It has reported a loss of $1.85 billion in 2018 though there is an increase in revenue by close to 43% Y-o-Y.
Is Uber valuation too high?
The Uber IPO is the most anticipated and will start trading in May. While the pricing details are not yet known there are reports that the company is looking at a valuation of around $100 billion but many experts believe that it is way too high. A leading market analyst said ‘I’m a little scared of Uber at $100 billion. I think both Lyft and Uber are struggling with a way to convert revenue growth into profits. So you are paying $100 billion for a company that still doesn’t have a viable business model. That’s scary’.
There is also a lot of speculation about Uber going the Lyft way. Lyft which became public in April which is already seeing a slump of 20% in its share prices as it is considered as overvalued. Compared to Lyft, Uber’s growth rate is slow and is also losing more money. Take all these into considerations many experts believe that Uber’s market cap is at least 5 times higher than it should be. Adding to it the Lyft stock prices are going further down and so is the enthusiasm for Uber stocks.
Uber is trying to justify the valuation as the IPO is approaching and their current strategy of promoting the self-driving car unit along with a deal from SoftBank may help them.