Uber Technologies’ shares fell nearly 9 per cent in their New York Stock Exchange debut, marking a rocky start for one of the most high-profile US companies to go public since Facebook seven years ago.
The fall in shares undermined Uber’s strategy of pricing its oversubscribed IPO conservatively at $US45 ($64) per share to avoid a repeat of rival Lyft’s stock market struggles following a strong debut in March.
Uber’s shares opened at $US42 ($59) and touched a low of $US41.06 ($58.65) in early trading on Friday local time.
Lyft was down 4 per cent, well below its IPO price.
The lacklustre market response comes against the backdrop of a spike in trade tensions between the US and China and increased investor scepticism about Uber’s ability to turn profitable soon enough.
Nelson Chai, the company’s chief financial officer who was at the NYSE to mark the first day of the stock’s trading, said he was not focused on one day of trading and was more concerned about the company’s long-term outlook.
The IPO marks a landmark moment for the decade-old company, which was started after its founders struggled to find a cab on a snowy night and has grown into the world’s largest ride-hailing company, making more than 10 billion trips.
The company’s road to IPO was marred by several hurdles including increased regulations in several countries and fights with its drivers over wages.
Uber has said that it has the potential to grow not just in the cab hailing business, but also as a “superapp” to provide a variety of logistic services, such as grocery and food delivery, organising freight transportation, and even financial services, much like Grab, its Southeast Asian counterpart.
But market experts have struggled to find value in a company that has consistently posted losses, and warned that it may never actually be profitable.
“The business is unprofitable, new entrants can enter the market, there is potential regulatory risk, and it is very price sensitive. What is there to like about this opportunity?” Robert Johnson, professor of finance at Heider College of Business, Creighton University in Omaha, Nebraska said.
As a private company, Uber has raised more than $US15 billion ($21.4 billion) from investors to fuel its growth and expansion into food delivery and freight hauling, with little regard for turning a profit.
Uber reported a loss of $US3.03 billion ($4.3 billion) in 2018 from operations.
But as a public company, it will have to deal with quarterly earnings reports and demands from shareholders to plot a path to profitability.
The company weathered controversies including the unearthing of a culture of sexism and bullying at Uber to a US Department of Justice federal investigation, which culminated in the resignation of CEO Travis Kalanick.
Uber eventually hired Dara Khosrowshahi as CEO.
Few firms of Uber’s stature have stumbled so badly out of the gate as a public company. Other well-known tech brands, from Facebook to Snap to Alibaba to Lyft, all rose on their initial trades. Since 2000, only 18 companies valued at more than $1 billion and listing on American exchanges had opened below their I.P.O. price. On average, tech stocks have jumped — or “popped,” in Wall Street parlance — 41 percent on their first day of trading over the past 24 years, according to Dealogic.
Uber raised $8.1 billion from its I.P.O., but the company and its bankers appeared to have misjudged how much investors would embrace the stock, which closed at $41.57. Last year, bankers said Uber could be valued at $120 billion upon its I.P.O., which would have made it the biggest American company ever to go public on an American stock exchange.
But that number declined in recent weeks amid questions about whether the deeply unprofitable company could make money. That was compounded by the performance of rival Lyft, which enjoyed a first-day surge when it went public in March but quickly fell below its I.P.O. price, and which posted a huge first-quarter loss this week.
Uber’s debut was also marred by a volatile stock market. On Friday, the S&P 500 index was on track for its fifth consecutive daily decline and its worst weekly performance of the year amid worsening trade tensions between the United States and China. But even as the index rallied to end the day higher, Uber’s stock continued to fall.
For other tech companies moving toward the stock market — including the workplace collaboration company Slack and the fitness gear maker Peloton — Uber’s I.P.O. is a warning that fast-growing but unprofitable firms may not be snapped up by investors as they have been in the past.
“This is going to cause some more caution in the I.P.O. market,” said Matt Kennedy, a market strategist at Renaissance Capital, which manages exchange-traded funds that focus on I.P.O.s. “Silicon Valley’s mantra of growth at all costs just does not fly on Wall Street.”
At the New York Stock Exchange, where Uber executives gathered Friday for the traditional bell-ringing ceremony to celebrate an I.P.O., the mood changed swiftly. What began as a buzzy morning shifted to anxiety as the numbers on the monitors that line the exchange floor began sinking — $44, $43 and finally $42, which was what Uber’s stock eventually opened at. The chatter dwindled, and voices hushed.
In an interview later in a small room off the exchange floor, Mr. Khosrowshahi said: “I think we came public on a tough day, and a tough week. But this is an incredibly resilient company.”
The chief executive referred to a quote from a famed financial analyst and economist, Benjamin Graham. “There’s the old Ben Graham adage: ‘Short term, the stock market is a voting machine, and long term it’s a weighing machine,’” Mr. Khosrowshahi said. “So we’re going to focus on building our mass, and building our scale. And I think the market will follow.”
The first day of trading does not necessarily indicate how a company’s shares will perform over the long term. Of the 18 companies that opened below their I.P.O. price since 2000, eight traded higher a month later and six a year later, according to Dealogic.
Uber is the biggest company to emerge from an age of smartphone apps, which began just over a decade ago after Apple introduced the iPhone in 2007. Other companies have adapted their businesses to mobile devices, but Uber was a mobile native, letting people hail rides with the touch of a button on their smartphones.
Along the way, it changed how people move around, allowing millions with no taxi licenses to become drivers without taking them on as full-time employees, an arrangement known as “gig work,” which has led to labor protests and lawsuits.
Uber, founded by Garrett Camp and Travis Kalanick in 2009, began as a high-end black car service for the Silicon Valley elite. The app seized on the iPhone, which had an accelerometer, an electronic instrument used to measure changes in velocity, and later a global positioning system, which Uber used to help both drivers and riders navigate the world around them.
The app, first called UberCab, was born of Mr. Camp’s frustration at San Francisco’s lackluster transportation options and an unreliable taxi industry. After some urging, he tapped Mr. Kalanick to lead the company as chief executive.
Soon, UberCab became Uber. Growth exploded when the company introduced UberX, a low-cost option that hooked customers with bargain fares and a near-ubiquitous service that spread quickly across the world.
By 2014, the company had moved from noun to verb. To “Uber” somewhere meant to catch a ride, even as competitors with identical offerings popped up across multiple continents. Mr. Kalanick, known for his competitive spirit and no-holds-barred approach to capitalism, raised billions in venture capital, building a war chest to battle his rivals with subsidized, artificially lowered ride fares. By 2016, Uber’s valuation had soared well north of $60 billion.
The company ran into trouble in 2017. After years of cutthroat business tactics and a raucous culture rife with partying, harassment and other illicit behaviors, Uber’s reputation caught up to it. Mr. Kalanick faced multiple personal scandals, culminating in his eventual ouster.
Since then, Mr. Khosrowshahi, a former chief of the online travel marketplace Expedia, has made it his goal to clean up the troubled company. His motto has been to always “do the right thing. Period.”
The task has been difficult. Though the company has spent millions to improve its brand, Uber’s reputation remains tarnished for some users. It must also improve its relationship with drivers, some of whom went on strike around the world on Wednesday to protest what they said were Uber’s unfair business practices.
And then there are the losses. Uber burned through nearly $2 billion in 2018 and does not expect to become profitable in the near future as it spends on ride-hailing and expansions into new businesses, such as Uber Eats, its food delivery service, and autonomous vehicles.