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The New Age of UBER: Going Public

April 16, 2019
Editor(s): Maggie Tan
Writer(s): Sam Iacono, Wendy Gu, Richard Sopatro, Nicholas Bea

INTRODUCTION

On April 11, news came about that Uber was intending to go public. Uber is due to begin its investor roadshow in the week beginning April 29 with plans to sell around $US10 billion of stock, as well as reserving shares for drivers who have completed 2,500 trips, amongst other criteria. Currently, the largest stakeholders are SB Cayman 2 and Benchmark Capital Partners, combining for a total stake of 27.3% of Uber. Alphabet, the parent company of Google also owns a 5.2% stake in the company, whilst the CEO of Uber Travis Kalanick still holds an 8.6% stake in the company. With Uber’s expected valuation being up to $120 billion, this would result in a cool $10.8 billion into Kalanick’s pocket.

IMPACT ON LYFT

Within those IPO documents, Uber established its market leading position and dominance over newly listed rival Lyft. A quick rundown reveals that Uber’s revenue is $11.3billion compared to Lyft’s $2.2billion. Moreover, Uber operates in 700+ cities globally, whilst Lyft is confined to only 300+ cities in US and Canada. To top it off, Uber has 3x the number of users as Lyft. Although having 91 million users, Uber’s growth has drastically slowed, and the documents suggest the company may never make a profit. Nonetheless, Uber’s grey market is currently suggesting that the firm could be worth up to $120 billion.

Uber has hired a huge syndicate of investment banks, including Deutsche Bank, Goldman Sachs and Morgan Stanley. Recently Morgan Stanley (MS) was threatened with legal action by Uber’s rival Lyft, amidst claims that the investment banking giant had marketed a short-selling product to Lyft investors. This essentially means MS engaged in actions to apply short pressure to the Lyft share price. However, MS went on record clearly denying these claims and reassuring that the firm’s activities were “the normal course of market making”. Lyft’s share price plummeted 12% in their second day on the market, however rebounded over the course of the first week. These events beg the question of whether some prior plans were set in place to ensure Uber wins in the market. 

HISTORY OF UBER

What once started off as a workaround to paying $800 to hire a private car on New Years Eve, Garrett Camp and Travis Kalanick have brought Uber into the global market space and turned it into one of the most dominating and highly valued startup company in the world. The idea for a ride-sharing app was envisioned in 2009, and at the time, went under the name, UberCab. However, in October 2010, a cease-and-desist order was imposed on UberCab from the San Franciso Municipal Transportation Agency, largely due to the use of the word, “cab”. Promptly, the UberCab name was changed to Uber, the rights to the website, Uber.com, were bought, and the rest is history.

In 2011, the company started as a black-car service, raising $11 million in funding from leading venture capitalist firm, Benchmark Capitals, before going on to expand operations all over the United States, as well as in Paris. These initial steps of global expansion would later serve Uber well as it went on to dominate the global transport-sharing market. By 2012, a new service, UberX, had been launched, and set out to distinguish Uber from the rest of its competition by offering a cheaper hybrid car service, as opposed to the black-car service Uber had initially been built upon.

From there, Uber continued to expand, establishing operations in London, Bulgaria, China, Spain and numerous others. However, global expansion of such a large scale did not come without its own legal issues. Taxi companies staged large protests against the ride-sharing service and at one point in December 2016, Uber had its licence to transport passengers, challenged and subsequently revoked in a London court. Nevertheless, the global transportation network company continued their expansion worldwide and currently operates in 300 cities across 6 continents, grossing close to $20 billion in 2016. It is perhaps, safe to say, Uber will continue to amplify and develop operations on a global scale. However, the social and economic impacts of such vigorous expansion will remain to be seen.

UBER EATS SUBSIDIARY

Uber Eats launched in August 2014 as an extension of Uber’s attempt to break into the market of food delivery. Originally named UberFRESH, Uber first began testing a service that provides lunch between 11:30am and 2:30pm to customers in the Santa Monica trial area, with a fixed price menu that offers a different selection each day and is refreshed every week, for $12 per meal. The service subsequently expanded to major cities such as New York and Chicago. Now, with a global presence in over 50 cities worldwide, the company is currently valued at USD$20 billion.

In the United States’ food delivery services industry, Grubhub is the clear leader. Founded in Chicago in 2004, the company now operates in 50 markets across the US and averages almost 14 million visits every month.

Average Monthly Traffic for Food Delivery Services in the United States

Source: SimilarWeb

In Australia, Uber Eats is the largest player in the online food delivery market ahead of Menulog and Deliveroo and its food sales are growing faster than ride-sharing revenues. Although Uber Eats is a newer meal delivery service compared to other leading organisations (launching in Australia just two years ago in April 2016) the service has quickly taken off. Uber Eats is used by 16.4% of young, inner city professionals with high incomes, putting it ahead of Menulog on 13.4%, Deliveroo on 7.3% and Foodora on 3.8%.

Uber’s food delivery service is attracting an increasing share of customers who have never used the ride-hailing app, as the fast-growing unit expands beyond Uber’s core markets. By the end of 2018, 40 percent of people ordering food through the app for the first time are new to Uber, compared with a third earlier in the year. In India, where Uber Eats has launched in several cities, more than two-thirds of Uber Eats customers have never used another Uber service. UberEats is an extremely successful endeavour by Uber and represents Uber’s magnitude of influence globally in a variety of different sectors.

UBER’S FINANCIAL STATISTICS       

Within the pages of the prospectus was a startling revelation. Uber admits it may never be profitable. Uber suffered a $3billion dollar loss from operations in 2018 with a statement conceding that “We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability.”

Apparently, Uber has been making major investments, so large that it caused the made its balance sheet negative. Recently, Uber has just acquired bike-sharing service “Jump” for a $200 million, spent upwards of $200 million into R&D in it’s self-Driving car unit, invested in Scooter company, “Lime”, not to mention that it has made a number of acquisitions of ride-sharing companies overseas. However, Uber reported that it still had $7.3 billion in the bank at year end, indicating that it will still be able to sustain further investments even without the money they gain from going public. 

Conclusion 

According to its current CEO, Dara Khosrowshahi, Uber already had all the disadvantages that a public company should. Uber has been receiving negative attention from social media due to its financial and legal battles and going public now seemed to be more advantageous for the company. Nevertheless, it will still be the biggest IPO since Alibaba, the Chinese e-commerce giant, went public in 2014. Only time will tell if the IPO will enable Uber to plow ahead with its mission to “set the world in motion”.

The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ, our Partners and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Maggie Tan
Editor

Maggie is a first-year Commerce student who moved to Melbourne from Brisbane at the start of 2018. She first developed a keen interest in Economics during high school and now wants to pursue a career in the Financial Services industry. When she’s not monitoring the latest market news, you can find her playing cards or making short films with her friends.

Sam Iacono
Writer
Wendy Gu
Writer

Richard Sopatro
Writer
Nicholas Bea
Writer