- Uber officially filed to go public on April 11.
- Analysts expect a valuation somewhere between $90 billion and $100 billion.
- This lower IPO price could be a reason to remain cautious.
Uber officially filed to go public on April 11. According to previously published documentation, the company expects to price this IPO between $48 and $55 per share. That pricing implies a valuation between $90 billion and $100 billion. The equity will trade under the ticker symbol “UBER” on the New York Stock Exchange.
The Uber IPO announcement comes shortly after Lyft, its most direct peer, launched its own IPO. Shares of Lyft initially spiked only to fall in subsequent days. Consequently, Uber has taken a more cautious approach, lowering its anticipated valuation as it seeks to avoid Lyft’s fate.
Which Ride-Hailing Service Stock Should You Buy?: Uber vs. Lyft
Reasons to Buy Uber Stock: Market Leadership, Chance to Profit From the Future of Transportation
The Uber IPO implies a valuation nearly five times that of Lyft. Hence, current investors will own the most important stock in what will likely become a game-changing industry.
Moreover, the potential for Uber will likely extend well beyond ride-sharing services and food delivery. Uber had plans to operate 75,000 self-driving vehicles in 13 cities by 2022. However, a burn rate of $20 million per month and a fatal test crash in Arizona last year delayed this plan. It resumed testing driverless cars in December 2018.
If Uber’s plan succeeds, it could change the way average Americans travel. It may even phase out individual car ownership for many. Owning a part of the company that spearheads this development could easily lead to substantial investor gains in the long run.
Drawbacks of Buying Uber Stock: Lower IPO Share Price, Lyft IPO
However, other factors might call for caution. The $90 billion to $100 billion valuation comes in well below the $120 billion Morgan Stanley and Goldman Sachs proposed in October 2018.
Also, the decline in Lyft stock has likely cooled investor sentiment as Uber and other companies such as Pinterest seek to launch their own tickers.
Moreover, analysts do not expect Uber to earn a profit for three more years. That expectation means underwriters might be scrambling to get their shares on the market faster to fetch a higher share price. The current bull market in stocks began more than 10 years ago, increasing the likelihood of a stock selloff.
Industry dynamics also play into the decision. Lyft shares have lost nearly 15% of its value since opening at $72 per share on March 29. Uber probably wants to avoid the same fate as it scrambles to raise about $10 billion from its sale.
Should You Invest in Uber?
Uber stands in a position to lead the future of transportation. Also, its status as the largest ride-share company could support the stock even if the market turns negative.
Still, reducing the anticipated IPO price implies fear. In a bull market that is now more than 10 years old, Uber may also struggle to maintain a premium price on its stock. Moreover, the decline in Lyft stock could mean that Uber’s stock follows the same path.
Uber will continue to transform how people get from point to point. However, buying Uber on the IPO day may not necessarily help investors profit from this change. Given this danger, traders should probably wait until the dust settles before buying Uber stock.
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