Ride-hailing giant Uber Technologies Inc. listed on the New York Stock Exchange on May 10 in one of the largest and most anticipated IPOs in recent years. Yet the euphoria was short-lived. By the end of its second day of trading, Uber's stock had fallen 18%.
Source: Associated Press
The poor start was not a complete surprise. Analysts told S&P Global Market Intelligence that Uber's early struggles can be attributed to factors including the timing, in relation to a busy first-quarter earnings period and the escalation of trade tensions between China and the U.S. Another factor was chief rival Lyft Inc.'s less-than-happy beginning to life as a public company, which highlighted widespread concerns with the ride-hailing business model.
Prior to the Uber and Lyft listings there had been talk of a race to go public, the thinking being that investors may only have appetite for one loss-making ride-hailing company in their portfolio, leaving the latter of the two at a disadvantage. In reality, Uber benefited from seeing the issues that Lyft faced and having additional time to address them.
Reports emerged that Uber's advisers had priced the offering conservatively in the hope of an opening-day bump and had weighted the book heavily in favor of blue-chip investors they thought were in for the long haul and unlikely to feed the appetite of short sellers, who have hoovered up much of Lyft's stock.
Uber would have hoped that these measures, plus the offer of a larger, more diversified and more internationalized business, would have been enough to avoid the same early woes as Lyft.
It now appears that the whole concept of a race to go public was something of a fallacy. Uber saw the potholes that thwarted Lyft but could do nothing to fix them. The biggest factor in the early travails of both companies is the very question of whether the ride-hailing services can ever deliver a sufficient return to investors.
That debate will continue to play out in the months and years to come.
Chart of the week: Uber's opening day
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