Between conflicts with taxi drivers, a sexual harassment investigation and a lawsuit filed by Google over the use of robocar technology that may already be patented, this has been a tough year for ride-sharing company Uber. Ongoing negative press has hurt Uber, and its financial position is not improving. The company lost $645 million between April and June of 2017, causing investment funds to mark down the value of Uber by as much as 15 percent.
Uber’s CEO Setback
Benchmark, one of Uber's top investors, is suing the company for fraud, breach of contract and other charges. The lawsuit played an important part in forcing Uber's infamous CEO, Travis Kalanick, to resign, and Benchmark has not dropped the lawsuit even now that Uber has a new CEO.
Former GE CEO Jeff Immelt seemed like a possible candidate for the position, but Uber's board settled on former Expedia CEO Dara Khosrowshahi. Khosrowshahi seems like a solid choice due to his background developing a $23 billion internet company. The problem with Immelt was that although he described his time at GE as turning "classic conglomeration" into a "125-year old startup," GE lost a third of its revenues and a third of its market cap during Immelt's tenure as CEO.
Immelt was likely among the runner-ups because of his success as a facilitator and his connections in the corporate world. Uber currently has no other serious competitors outside of Lyft and the greatest threat to the company's growth is government regulations. However, there is no guarantee that Immelt could have protected Uber from new regulations. And new CEO Dara Khosrowshahi is unafraid to openly defy government regulations: Expedia was one of the tech companies that opposed President Trumps' travel ban in court. In this regard, Khosrowshahi is a safe bet. However, whether he can move Uber towards an IPO is doubtful.
Uber Has More Hurdles to Come
Finding a new CEO is only the first step towards repairing the image of the company and towards moving forward to an IPO. Without strong leadership, current investors will not be able to realize their returns when the company goes public. There have been some speculations regarding an Uber IPO in 2017, but this is no longer a possibility given recent events, and the longer it’s pushed back, the less promising the IPO becomes.
If Uber was a tech company in the 1990s, there definitely would have been an IPO by now that would have helped Uber secure funding and would have boosted its stock price. But IPOs today are very different from those of the 1990s. Uber has raised $68 billion in 16 different rounds of funding since its creation in 2009. This clearly shows that the company does not need an IPO to secure funding like tech companies did in the 1990s. However, this funding came in Uber’s early stages. Uber’s technology is no longer unique, so whether they can offer something new will likely determine their IPO’s outlook.
The IPO Golden Days are Over
Almost 8,000 companies went public in 1996, but the average year now sees half that number of companies IPO. In the 1990s, a successful company would typically have its IPO after about six years of operations. Nowadays, it is common to see companies wait until past their first decade of existence before going public. Companies often choose to delay IPOs in an effort to retain control over the long-term goals and direction. This is part of Uber's goal with their investments in self-driving cars.
Many companies also avoid going public to avoid having to deal with increased federal regulatory compliance. Increased regulation like The Sarbane-Oxley Act of 2002 have led to the demise of investment banking and IPOs. Sarbane-Oxley, in particular, has been criticized as costly and cumbersome, especially for companies without the resources to accommodate the rule.
Finally, companies no longer benefit from the post-IPO stock growth. Now, they tend to use IPOs to build reputation or to achieve liquidity, rather than to raise capital. The average IPO currently raises $192 million, while Amazon's 1997 IPO only raised $54 million. We will probably never see IPOs like Yahoo!, eBay or Netscape again. Netscape was worth $2 billion after one day on the market in August 1995. That era ended when the dot-com bubble popped.
Still, an Uber IPO could be a major event for the tech market when - and if - it does happen. But at a bare minimum, the company must first fill a few more vacant executive positions, including COO, CMO and SVP of operations, and more importantly, introduce new technology that sets Uber apart from competitors. It is likely that investors will wait for the new CEO to get the company back on track before pushing for Uber to go public.
Chris Markowski has carried the titles of author, investment banker, equity analyst, and consumer advocate. He is the personality behind Watchdog on Wall Street and founder of Markowski Investments. Chris Markowski’s free white paper “Emergency: Prepare Now for the Retirement Crisis” is now available! Download your free copy now.
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