Uber Makes IPO Case That It’s About the Platform, Not the Losses

Uber Technologies Inc., the current era’s archetypal startup, moved toward becoming a public company Thursday, revealing that it racked up a $3 billion operating loss last year and hoping potential investors will look beyond that.

Less than two years after being tapped to take Uber to its initial public offering destination, Chief Executive Officer Dara Khosrowshahi’s stamp on the company has been branding it as a “platform” — a word that appears more than 700 times in its IPO prospectus.

Khosrowshahi, who quit his CEO job at Expedia Group Inc. to join Uber, is pitching the ride-hailing giant as an interconnected web of promising businesses. Most notably, Uber’s food-delivery business grew 149 percent year-on-year to $1.5 billion in revenue in 2018.

“Our continued success will come from stellar execution and the strength of the platform we have worked so hard to build,” Khosrowshahi said in a letter to investors included in the filing.

To make that case, Uber cites a preferred metric: monthly active platform consumers, otherwise known as people who touch one of its services at least once a month. Uber says it has 91 million MAPCs, more than double the number in 2016.

Khosrowshahi isn’t just trying to look past ride-hailing, he’s also trying to move beyond his predecessor, Travis Kalanick, whose brash leadership frequently landed the company in court or under the microscope, or both.

Uber’s ‘Missteps’

“Some of the attributes that made Uber a wildly successful startup — a fierce sense of entrepreneurialism, our willingness to take risks that others might not, and that famous Uber hustle — led to missteps along the way,” Khosrowshahi said in his letter. Nonetheless, Kalanick remains on Uber’s board with an 8.6 percent ownership stake, according to the filing.

Uber’s biggest challenge in its IPO, in which it seeks to raise about $10 billion, according to people familiar with its plans, may be simultaneously explaining to investors why the company is immature enough to justify losing billions of dollars, while proving it’s mature enough to be a publicly traded company worth somewhere in the range of $100 billion.

That’s where the case for the platform comes in.

Uber, 10 years old and easily the world’s biggest ride-hailing company, holds a market share in that category of more than 65 percent in the U.S., Canada, Latin America, Europe, Australia and New Zealand, the filing with the U.S. Securities and Exchanges Commission shows. But growth in its core business is decelerating. While ride-hailing revenue grew 95 percent in 2017 from the previous year, that rate slowed to 33 percent last year, Uber said in the filing.

Amazon.com Comparison

Its solution is to cast itself as a still-fledgling character in the broader transportation landscape. Uber is just at the very beginning, it argues, asserting that its share of the entire global transportation business is less than 1 percent.

Drawing an implicit comparison to Amazon.com Inc.’s push to become the universal retailer, Uber contends its platform positions it to become all-things transportation, encompassing everything from scooters and bicycles to freight delivery, driverless vehicles and even flying cars.

“It sort of reminds me a little bit about the internet era when it was about ‘so many eyeballs are hitting our site,’” said Reena Aggarwal, director of the Georgetown Center for Financial Markets and Policy.

Uber’s diversification push is worth noting, Aggarwal said, citing Uber Eats as a start.

“Uber Eats is a pretty big chunk of the company right now,” she said. “We think of it as just a ride-sharing company. I wonder in five years, what is it going to look like.”

First Look

The long-awaited IPO filing gives potential investors their first look at hundreds of pages of detailed information about Uber. The San Francisco-based company plans to kick off a road show to market shares to potential investors this month and begin trading publicly in May, the people familiar with the details said.

The IPO comes amid an expected surge of listings by Silicon Valley unicorns — startups valued at more than $1 billion — and is likely to be the largest U.S. listing this year and among the 10 largest of all time on U.S. exchanges.

Uber’s filing follows rival Lyft Inc.’s $2.34 billion listing in March, which is the biggest U.S. IPO so far this year. Pinterest Inc. and Zoom Video Communications Inc. are set to price their IPOs next week. Other high-profile companies considering going public include Slack Technologies Inc., Postmates Inc., Palantir Technologies Inc. and Airbnb Inc.

Details of Uber’s proposed offering, including the targeted price range and the number of shares for sale, will be disclosed in a later filing.

Operating Losses

Uber lost $3.04 billion on an operating basis in 2018 on revenue of $11.3 billion, bringing total operating losses over the past three years to more than $10 billion, Thursday’s filing shows.

The company, which has previously made public some of its financial results, disclosed further details in its filing — including a net income of $997 million for 2018. That profit was driven primarily by the sales of assets in Southeast Asia and Russia, as well as an increase in the estimated value of its stock in China’s largest ride-hailing company, Didi Chuxing. Those deals contributed to almost $5 billion in what Uber called “other income.”

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Uber’s reliance on ride-sharing for the vast majority of its revenue is evident from its filing. In the fourth quarter, the company generated $2.54 billion in adjusted net revenue, with $2.31 billion of that coming from ride sharing. Only $165 million in adjusted net revenue came from Uber Eats.

Uber filed with an initial offering amount of $1 billion, typically a placeholder amount used to calculate fees that will change. The company applied to list on the New York Stock Exchange under the ticker UBER. Morgan Stanley and Goldman Sachs Group Inc. are leading the offering.

IPO Pass

Investors are traditionally willing to look past losses in an IPO, especially such a significant one, said Barrett Daniels, a Deloitte partner who advises companies on going public.

“There’s so much around this to make it an interesting and compelling transaction,” Daniels said. “The brand recognition makes this company so valuable.”

The growth of Uber Eats, from about $100 million in revenue to about $1.5 billion over three years, is particularly exciting, he said.

“If that was a stand-alone business, Uber Eats by itself would make it an incredibly compelling story,” he said.

What Bloomberg Intelligence Says

“Uber Eats and other bundled offerings should boost client retention and revenue per active rider and may also give Uber greater pricing power over time, in our view. Uber Eats’s revenue already exceeds GrubHub’s, the largest pure-play food-delivery vendor.”–  Mandeep Singh, technology analyst Click here to read the research.

Lyft Slips

Lyft’s performance since its March debut may signal caution to some investors. Lyft, which operates in the U.S. and Canada, increased the size of its share sale, and then priced its shares at $72 each, at the top of an elevated range. The stock then leaped 21 percent at the opening bell, only to sink since then, closing at $61.01 on Thursday.

Uber’s sheer size may set it apart from Lyft, said David Erickson, a finance professor at the University of Pennsylvania’s Wharton School.

“The punchline is this the largest high-growth tech company that’s going to be going to the public markets,” he said. “This is where everyone is going to focus when they think about where they want to allocate dollars from an investor standpoint.”

Here are some of the other key numbers in Uber’s 285-page IPO filing, which included dozens more pages of financial statements:

Uber has spent more than $1 billion on autonomous vehicle technology to compete with Alphabet Inc., Apple Inc. and General Motors Co. The company’s primary user number is called MAPC — monthly active platform consumers. That number stood at 91 million in the fourth quarter of 2018, up from 68 million in the same period of 2017 A roster of 29 banks in total signed on to underwrite Uber’s IPO Uber is putting aside $300 million to make a one-time cash payout to 1.1 million qualifying drivers Khosrowshahi’s compensation will be in part tied to Uber maintaining a full diluted equity value of $120 billion.

— Eric Newcomer and Olivia Zaleski (Bloomberg)