initial public offering (IPO)
Denotatively, an initial public offering (IPO) denotes the actual process of giving out private corporation shares to the public in an authentic or new stock issuance. Uber Technologies is one of the heavily anticipated IPOs in the recent past, ride-sharing company Uber made its public market debut on the New York Stock Exchange on 10th May 2019 (Shieber, 2019). Uber reckons this IPO date (10th May 2019) as one of its worst nightmares when its anticipation in the stock market was not achieved, and generally, things did not go as planned by the company. With the offering size of $8.1 billion, Uber is number four on the stock list. The company decided to set its offer price of between $44- $45 (Shieber, 2019). Uber’s rival, Lyft, took the day by hitting the market first despite not having a smooth ride in the stock market. Lyft planned to sell its shares at $72 per single share but ended up trading at $50 per single share and even below.
Notably, Uber Corporation shelled out more than $106.2 million to different underwriters led by Stanley Morgan per filings with the Securities and Exchange Commission. The group of Uber underwriters includes Citigroup, Barclays, Bank of America, BofA Merrill Lynch, Goldman Sachs, and Allen & Company (Shieber, 2019). At the expense of these underwriters, Stanley has been accused by the Uber rivals Lyft Corporation of interfering with the stock market, whereby allegations regarding the company having its share values even before entering the stock market.
Uber Technologies Corporation Chief Executive Officer Khosrowshahi Dara and the rest of the top management officials took the ride-hailing giant’s investor roadshow for its IPO as its shares demand exceeds the supply. As of 9th May 2019, Uber was looking for a valuation of over $90 billion, and the investors that attended the roadshow mentioned that the IPO book was making them subscribe to the company idea, hence making pop in the corporation shares on its first trading day (Shieber, 2019). Therefore, the Uber IPO’s demand was high, courtesy of investors subscribing to the Uber idea of diversification, whereby the company could diversify its business from transport and delivery system to other areas, including shopping.
Question Two
Uber’s offer price of the shares was $45, but it was a huge disappointment when the company commenced trading at $42 per single share and then backsliding even further to $41.60 U.S. Dollars at the end of its first day in the stock market. Statistically, Uber company found itself with a $69.7 billion market cap on the table by the end of the first day (Shieber, 2019). Initially, using the $45 per share, Uber had made a valuation of getting $75.46 billion at its IPO. In this way, it is evident that Uber Corporation was at a $5.76 billion U.S. Dollars deficit to achieve its target.
Question Three
Holistically, the performance of Uber post-IPO has been devastating and retrogressive. In terms of valuation, Uber had a market cap of $72 billion, whereby it has a potential decline of between 5-10 percent (Shieber, 2019). the corporation’s market cap is estimated to be below $50 billion if Uber does not take prior strategies to prevent the occurrences.
Additionally, Uber Technologies Inc. is making losses post IPO. Uber is making staggering losses of $1.3 billion, growing from $880 million from the previous financial year (2018). The loss is even predicted to escalate if authentic strategies like trucking are not necessitated. Also, Uber’s average growth rate and hyper are behind it.
Question Four
The first mistake that Uber Corporation made is that it priced its IPO much lower than many outside and inside the corporation had expected. According to Brigham and Ehrhardt (2013), the low pricing of IPO made Uber technologies Inc. plunge and reduced its stock market price by eight percent. In this way, the company’s lower price meant that the company was making less money from the IPO than the way it should have done. The lower share pricing is part of the factors that reduced the company’s branding, hence translating to the decreasing share price in the stock market.
Second, the other mistake that Uber corporation made is that many of its shareholders are underwater. Garud et al. (2020) opine that underwater shareholders have a great potential of interfering with the stock market value. Here, the other private investors fear buying the shares because they know that they can make losses. After all, the shares’ market value can drop to retrogressive levels that benefit underwater investors. Uber company should have reduced the number of underwater shareholders and allowing more private investors to buy the company shares. Uber’s market value fall is perpetuated to be intentional and pressured by internal forces within the Uber corporation.
Question Five
There are several lessons that other companies can learn from Uber corporation. The first lesson that companies should learn from Uber’s failure is that there is a need for diversification. There have been complaints from Uber interested parties that the company was not embracing diversification. Employing employees from different backgrounds is an effective form of diversification. Employing employees from different backgrounds hikes the organization’s reputation. The reputation helps when deciding on the stock market value of the company shares. The company will do authentic research and understand the share demand and gauge the price for each share. Uber specified the share price without conducting authentic research regarding the demand.
Besides, visible income inequality depiction is another lesson that companies need to learn. In Uber, the ride-sharing drivers have been lamenting and picketing due to low wages. The tech workers are getting huge wages and enjoying the other epitome benefits. Therefore, technological companies should focus on the wages that the lowest level employees get to ensure organization equality. Corporations should ensure that there are no too many underwater shareholders, a scenario that leads to a negative influence on stock market value.
References
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage Learning.
Garud, R., Kumaraswamy, A., Roberts, A., & Xu, L. (2020). Liminal movement by digital platform‐based sharing economy ventures: The case of Uber Technologies. Strategic Management Journal.
Shieber, J. (2019). A Brief History of Uber’s Bumpy Road to an IPO. Joint extra Crunch. Retrieved from https://techcrunch.com/2019/05/10/a-brief-history-of-ubers-bumpy-road-to-an-ipo/.