Uber: the winding road from Paris to NYSE

It’s perhaps difficult to remember a time before the now-ubiquitous whirring sound of Toyota Prius hybrids shuttling busy people around the world’s cities, but in reality Uber is just 10 years old. The company, whose long-awaited stock market debut came to fruition just over a week ago, was launched by founders Travis Kalanick and Garrett Camp having been frustrated at the difficulty of finding a cab on the snowy streets of Paris a year earlier.  

In San Francisco, UberCab – as it was then known – connected its first rider and taxi on the 5th of July 2010, and by 2011 the app was already available in Paris. 2015 was all about delivery: not only was Ela Melanie the first baby to be born during an Uber ride, but it was also the year in which Uber Eats officially launched, providing on-demand meals to the people of LA, New York and Chicago. By December that year, the company had recorded 1 billion trips – a number which had doubled just six months later. 

It is just one measure of the stratospheric growth the company was seeing; a business that today is present in 600 cities across 65 countries, saw its revenues top $11bn in 2018 and serves some 75 million customers worldwide.

Uber CEO, Dara Khosrowshahi

Of course, the road has not always been so smooth. Alongside its impressive growth, the company has also been plagued by various controversies that have included privacy breaches, concerns around passenger safety, debates about driver pay and conditions, leadership challenges and regulatory battles.  

Nonetheless, Uber has picked up several significant investors along the way, from Jeff Bezos and Jay Z to Fidelity Investments and SoftBank. Such was the hype, when the key players on Wall Street sought the prestigious role of representing Uber in an upcoming IPO late last year, they were said to be pitching the company’s value at $120bn. At that price, Uber would have been crowned as the biggest listing of an American company on a US stock exchange.  

As it turned out, it was a case of misplaced surge pricing. In reality, its stock market debut was ultimately priced at $45 a share – the bottom of its anticipated range and representing a valuation of just over $82bnJust over a week later, the share price has been unable to retain that price ever since; by the end of the first day of trading it had fallen to $41 and has since dipped as low as $37. At the time of writing, it is trading at around $42

Despite the initial hype, perhaps this shouldn’t come as such a surprise. Several commentators have highlighted the negative impact external events will have had on Uber’s fortunes – indeed the IPO came just days after US President Donald Trump’s raising of tariffs on $200bn in Chinese imports from 10% to 25% weighed on overall investor confidence.  

Photo credit: Lyft

Meanwhile, Uber itself was conscious of the performance of rival Lyft, which has also had a rocky start to its life as a public company since it launched on the Nasdaq in March. Though it saw its share price rise to nearly $79 from a launch price of $72 on the first day of trading, it has dropped off significantly since. By the second day, it had fallen to $69 and when Uber hit the stock market, Lyft shares were trading at $62.    

The lacklustre performance of these high-profile launches will no doubt have dented the confidence of others looking to IPO in the near future, but more positive stories do emerge elsewhere. Pinterest, for example, launched at $19 a share in April, and today is still trading significantly higher despite reporting a larger than expected loss in its first ever earnings report. Similarly, Levi Strauss has been performing well since it returned to the New York Stock Exchange in March.

That said, according to PwC’s most recent IPO Watch Europe report – covering the first quarter of 2019 – it is clear that companies are reluctant to launch on the public markets: a total of 32 offerings raised just €0.7bn in total, compared to €13.1bn and 69 IPOs in the same period of 2018. The context of broad geopolitical uncertainty is weighing on investors, despite an increasing availability of cash to deploy. Of course, in the UK and Europe, Brexit uncertainty has damaged confidence, though London remained the most active centre for IPOs in the period.

Photo credit: Levi’s

Looking beyond external factors, five years ago – in what was a bumper year for IPOs, particularly in the consumer-facing industries – The MBS Group carried out an in-depth study of what it takes to build an IPO-ready business and a Board that can react quickly to favourable market conditions, as well as examining the effects of the IPO process on a business and its key executives. 

Through detailed analysis of recently-listed businesses and extensive interviews with their CEOs, Chairs, CFOs and Non-Executive Directors, we found that: 

– The IPO process weighs heavily on the CEO, CFO and wider finance team – severely diminishing their ability to focus on the day-to-day running of the business 
– Strength and depth in the wider management team is therefore essential in the run up to an IPO, especially as performance is being scrutinised closely by potential investors 
– Most businesses we spoke to felt they should have appointed their new independent Non-Executive Directors earlier in the process 
– Across the top teams (CEO, CFO, Chair and NEDs), few had prior IPO experience – but the vast majority did have previous PLC experience 
– Careful consideration needs to be given to the cultural, technical and procedural shift moving to a PLC environment – particularly for previously private equity-owned businesses 

These findings have remained consistent as we have tracked IPOs in the consumer sectors through more uncertain times since then. With a broad range of exciting businesses rumoured or confirmed to be preparing for IPOs and other major transactions in the near future, it is a worthwhile reminder that it is never too early to build the right team – not only for the transaction itself, but also to keep a firm grasp on business-as-usual while the attention of critical executives is diverted elsewhere.

simon.more@thembsgroup.co.uk | @TheMBSGroup