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Uber's debut on public markets was not really a disaster. But it was surely embarrassing.
Worse still for the company and its leaders, the IPO and its consequences could prove costly in more than one way.
The app-based taxi service became public Thursday night at $ 45, which was near the bottom of its expected range. Pricing gave the company an initial valuation of $ 75.5 billion – well below the $ 120 billion investment bankers announced last fall.
It was already serious enough. But things got worse when Uber's stock was sold Friday on the New York Stock Exchange. Its shares opened below their introductory price and remained down all day. They ended their first trading session of $ 3.43, close to 8%, to close at $ 41.57.
This was an unfavorable start to one of the most anticipated IPOs in years.
Read it: Uber has chosen the worst week possible for its IPO, and the bad timing will cost him billions
As disappointing as it may be, you can not qualify the offeror for failure. After all, thanks to its IPO, Uber raised $ 8.6 billion. For a business that has been losing money for years – and will probably do so in the coming years – these new funds are probably more than welcome.
And although the decline in Uber's share price on Friday could have given the company a black eye from a public relations standpoint, she suggested that the company should take advantage of its IPO for all that It was worth and more. Institutional investors who bought Uber shares on Thursday ended up paying more for stocks than ordinary investors thought. That's the Uber gain – and the loss of institutional investors.
Uber has raised less money than expected
Nevertheless, the celebrations at Uber's headquarters in San Francisco are likely to be a little milder than what might have been expected about six months ago when the $ 120 billion valuation figure was announced.
One of the reasons for this is that the initial public offering has raised much less money than the company could have hoped for. Given the 180 million shares sold, Uber could have raised $ 12.8 billion if it had come out with a valuation of $ 120 billion. That would have put an extra $ 4.2 billion into his coffers. For a company that has spent more than $ 2 billion in cash through its operations and capital investments in each of the past two years, that represents two more years.
Even if it had just priced its IPO at $ 50 per share, which was the high end of the range announced last month, the company would have collected $ 900 million more than its IPO. it's almost an extra half year of life.
But the IPO was disappointing and costly for more than the company itself. For more than three years, Uber has sold its shares in private offers to investors such as Softbank and Didi Chuxing for $ 48.77 in the stock. These investments were all under water at the IPO price and were still lower after the first day of trading.
Of course, there have been many investors who have entered Uber on earlier dates and who have earned a lot of money through the IPO. And investors in late-stage venture capital usually expect much more limited returns than those in the start-up phase. But they almost certainly expected to see an immediate return when society became public, rather than seeing their investments officially in the red.
The IPO likely disappointed insiders and early investors
The IPO was probably also frustrating for CEO Dara Khosrowshahi, who has tens of millions of dollars in compensation. The company awarded him 1.75 million stock options last year. It will only be obtained if the company is acquired for $ 120 billion or if its market capitalization reaches this amount and maintains it for 90 consecutive days. Uber is even further away from this goal than it was last night.
Some Uber investors and insiders are likely to be disappointed with the IPO for another reason. The shares that the company sold as part of its public offering came all from Uber's vaults. They did not include any shares held by insiders or early investors.
Instead, insiders and early investors who wanted to sell shares as part of the offer did so by dedicating them to Uber's stack of over-allotment, which consisted solely of their shares. The over-allocation stack is the group of shares for which bankers who subscribe an offer have an option to buy from the company at the price of the IPO if they believe the demand is sufficient or to stabilize the stock price of the company after the offer.
But, as Bloomberg's Matt Levine explained, bankers do not have to buy these shares of the company, even though they've already pledged to sell the same number to institutional investors. Instead, they can simply go out and buy the required number of shares in the open market if it is financially justified.
As Uber shares are trading below the price of their IPO, it seems like this will be the case of the over-allotment of the company. Uber bankers can buy the shares they need on the open market at a lower price than they would have paid for those in the over-allotment stack. Assuming that they do so, insiders and investors of Uber have no chance. Worse for them, they will see no financial benefit to Uber becoming public before six months because they have all signed blocking contracts preventing them from selling their shares apart from the ones they've dedicated to over-allotment for this period. of time.
Of course, it's hard to be too sorry for these insiders and these early investors. Many who had planned to sell will end up with huge profits, even if they can not sell immediately.
Uber could see a talent flowing
This is not the case for the majority of Uber's core employees. The company has grown from about 3,500 employees in August 2015 to more than 22,000 by the end of last year. For many of these employees, a significant portion of their compensation consists of shares or stock options.
Uber granted 5.5 million options last year and 2.9 million the year before. Last year, it distributed 64.7 million restricted shares and 41.2 million in 2017.
Many of these options and actions are now at risk of being overwhelmed. The options offered by Uber in 2017 have an average exercise price of $ 41.39, which means that at the close of trading on Friday, each of them was in the currency of only 18 cents. The restricted shares distributed that year each had an award value of $ 40.75, which meant that they were worth little more than when the employees had received them.
Employees are in better shape with the shares and options they received last year. The options have an average exercise price of $ 33.45, while the subordinate shares have an award value of $ 36.73 per share. Nevertheless, the stock of Uber would not have to fall dramatically so that these too are under water.
In Silicon Valley, many workers who join startups consciously and often enthusiastically accept options and actions instead of higher pay. The bet is that their stock-based compensation will be worth far more than a cash wage – and will make them potentially very wealthy – when their companies go public.
But if Uber's IPO price is an indication, its employees will not see the kind of jackpot that many were likely expecting when they signed up.
This could be more than a mere disappointment for Uber workers. This could be a big problem for the company. Employees who do not see the expected benefits will likely be more willing to consider other companies' offers. Uber could see a big loss of talent if he fails to steer his stock price in the right direction.
So, although the IPO of Uber is not catastrophic, it was a disappointment. And its effects could persist long after the bell that struck the first day of trading.
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