Uber is planning on following competitor Lyft in launching a road show ahead of a potential IPO in the coming weeks, Reuters reported Thursday. Sources familiar with the situation said Uber is planning to publicly file its required S-1 disclosure sometime in April.
What Is A Roadshow?
An IPO effort begins with the the company that's going public assembling a team of underwriters to draft a form S-1 to submit to the Securities and Exchange Commission to gain regulatory approval.
Once the IPO is approved, the underwriters organize a roadshow to travel around and meet with prospective investors. During the roadshow, the underwriters typically explain the circumstances of the IPO to investors, including factors such as how many shares of stock the company is selling and the target valuation.
The purpose of the roadshow is to sell shares of stock, but also to gauge the level of market interest and narrow the target price range.
Underwriters have a lot riding on getting the IPO price right: if the price is too low, the underwriters failed the company in maximizing its funding. If the IPO price is too high, the underwriters failed the IPO investors in protecting their investment.
Race To The Market
Lyft is kicking off its two-week road show March 18, suggesting an April IPO is likely. Uber will likely follow closely behind, although no official dates have been announced.
The Lyft IPO has certainly been highly anticipated, but it is certainly not on the same scale as Uber. Uber reportedly generated $11.3 billion in revenue in 2018 compared to Lyft's $2.2 billion.
Uber also reported a net loss of $3.3 billion last year compared to only a $900-million loss for Lyft. Yet growth investors may be more impressed by Lyft gaining market share. Lyft’s revenue grew 103 percent last year compared to just 43-percent revenue growth for Uber.
The smaller Lyft will likely benefit from hitting the market as the first ride-hailing investment option. Uber is likely fine going second and could potentially learning from any mistakes its rival makes during the IPO process.
A Word Of Caution
With an estimated company valuation of around $100 billion, Uber could be the largest IPO in U.S. market history.
Unfortunately for retail investors who do not get shares at the IPO price, history hasn’t been kind to large tech IPOs. Eight of the ten largest tech IPOs in history declined between 25 and 71 percent in the year following their first day of trading.
The most recent example of a high-profile tech IPO bust is Snap, Inc. SNAP.
Snap closed its first day of trading in March 2017 at a price of $24.48. Roughly two years later, Snap shares are now trading at $11.44.
"If you think about it, any company will wait for the moment when they believe they can get the highest price," Commonwealth Financial Network chief investment officer Brad McMillan said of tech IPOs following the Snap launch.
"Many times we see buying pressure drive the price higher initially, but this only increases the incentive for existing shareholders to sell — which can result in price declines after that initial buying surge subsides."
At a $100-billion valuation, Uber would only have to offer about 25.2 percent of its shares to eclipse Alibaba Group Holding Ltd. BABA as the biggest IPO of all time.
Photo courtesy of Uber.
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