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Uber's IPO was a failure, even though their bankers used every possible trick to prevent their stock price from collapsing on the first day. In particular, they would have bought shares themselves according to a tactic called "naked shorts".
But investors who were interested in Uber's earnings, its utilization rate, its growing indebtedness, its growth rate were not biting and the billionaire Marc Cuban held to point out that he was not surprised at the difficult times that Uber lived.
He told CNBC on Tuesday that he was blaming Silicon Valley's venture capital industry.
Read: 3 reasons why Uber had a "strange" and terrible IPO, according to a portfolio manager who would not buy the stock
"It's not a growing business, it's a brand, they just waited too long, it's nothing exciting," Cuban said.
"The reality is that you are nine years old and you still have to buy your income? This is not a good sign," said Cuban, investor in the capital-sharing rival, Lyft.
Many young companies in Silicon Valley go public when they are not profitable, but they reassure investors with all the red ink by showing them how current spending will translate into explosive growth.
While Uber's bankers and executives are presenting Uber as the next Amazon, the numbers reveal a different story. Amazon became public in 1997 after increasing its revenue from $ 511,000 to $ 15.75 million in one year. While the losses have increased by $ 304,000 on just under $ 6 million, everything related to Amazon's business is different from Uber's.
Blame the VCs
"You are nine years old and the economy of the entertainment industry is put to the test when the unemployment rate is low and the overall economy is growing because it is not a prime job. for most people, it's a work of last resort, "Cuban said. (Technically, Uber was founded in 2009, so it's 10 years old, but it launched its first black car beta release service in 2010.)
To be fair, Uber's business figure has increased in 2018 compared to 2017, just like its expenses. And while he is the market leader in carpooling, he has other promising companies, such as food delivery.
But Uber did not make a profit until 2018 because it sold one of its business units. This is not the typical sign of growing a business.
Read: Here is what enriches during the IPO of Uber
Cubans blame Silicon Valley's venture capital system, the love of unicorns, which keeps private companies during their greatest years of growth, by focusing huge returns on early investors and growth fund investors .
"I just think we are seeing a reflection of Silicon Valley 's ethics in the public market." The whole attitude was to wait, wait, wait, wait and see. You do not want to deal with the IPO.But at a point in time, all these venture capital companies need a liquidity event.This also suggests that They are not very good at evaluating companies. "
Many of these investors sold parts of their holdings at the IPO price of $ 45 and still did well with the IPO.
But most of them still have the majority of their holdings stuck for at least six months before they can sell. And, although they all earn money on the shares they've bought for just 33 cents to $ 3.50 the action they will obviously do better if the public shares come out better.
"Obviously, they did not listen"
Cuban is an investor in Lyft and has not been pleased with its IPO.
"I'm still a little ahead of my stock – it was a million dollar position, so it was big but not huge for me." No, I did not. When I bought at Lyft it was four years ago, and from that moment on, I pushed them to go public. have not listened. "
Although Uber's depressed share price has always turned the company's founders, top investors and top executives into high net worth individuals, it's harder for core employees. In Silicon Valley, many people receive a portion of their compensation in stock.
In 2017, as the value of the company soared, Uber granted 2.9 million stock options and 41.2 million shares called equity units. 39; restricted shares in 2017 at an average exercise price of $ 41.39, as reported by Troy Wolverton of Business Insider. RSUs are generally tied to performance expectations and unlocked over time. The shares that employees bought at that price, or have to buy at that price when their stock is unlocked, are now under water while Uber is trading well below $ 40.
Employees who joined or received shares in 2018 are a little better. Uber's valuation dropped, thanks to its high-profile fights during which Softbank bought a large discounted stake. Options granted to employees beginning in 2018 have an average exercise price of $ 33.45, while subordinate shares have an award value of $ 36.73 per share.
At the current price of Uber stock under $ 36 – $ 39 / share, these stocks will not generate much performance for employees.
Read: The woman who rang the bell of the IPO of Uber is Austin Geidt, whose life is the very essence of the Valley legend
The company was definitely hoping for a better IPO. Dara Khosrowshahi, the company's CEO, offered a huge bonus of more than $ 100 million if the company's valuation reached $ 120 billion and stayed there for three months. He is not yet close to reaching that figure, but the board will probably be happy to honor him if he can do so in the future.
So, the game of unicorns on hold does not really relate to almost all those who join these companies late.
"This is not a very effective market for evaluating IPOs of companies in the development phase," Cuban said. While the profitable Zoom has done well "Pinterest, Lyft, Uber, I think it's a real challenge."
Cuban hopes that these difficult IPOs will change the mindset of investors in the valley. Many of them do not invest early to invest in start-ups, but "prefer to invest later, and later," he said. bunch of unicorns, even if it is paper unicorns, it looks good in your wallet. "
He explains that the IPOs of 2019 could serve as an alarm to CEOs and, in particular, to employees recruited by companies in the development phase and to whom actions are proposed as part of their compensation. They will wonder if their stock will bring them any money.
Here is the complete interview with Cuban:
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