Uber Closes Below IPO Price On First Day Of Listing

Uber Closes Below IPO Price On First Day Of Listing
May 13, 2019

 

Uber’s much-awaited stock market ride didn’t begin smoothly. The shares of Uber Technologies Inc. (NYSE: UBER) ended its first day of trading on Friday down almost 8% below its initial public offering (IPO) price, as the ride-hailing company’s market valuation fell below $70 billion. The previous day, Uber had priced its highly anticipated initial public offering (IPO) at $45 per share. UBER closed Friday’s trading at $41.57, down $3.43 or 7.62% on the NYSE.

San Francisco-based Uber stated on Thursday that it had priced its highly expected IPO at $45 per share, making it the largest IPO for US business since Facebook. Uber expected to raise $8.1 billion by divesting 180 million common shares at that price which was near the bottom of its original price range of $44 to $50 per share.

The pricing was anticipated to offer a valuation of about $75 billion for the firm. Notably, as a private entity, Uber was funded to the tune of $28.5 billion by more than 166 distinct backers, with final valuation reaching $75 billion. The company finally settled for a valuation of $82.4 billion for the IPO by divesting 180 million stocks at $45/share, but far below the $120 billion grandiose estimates that banks and analysts proposed in October 2018.

Regarding IPO pricing, John Tuttle, NYSE COO, said: “I think a lot of things go into pricing an IPO. Market conditions and how two comparable companies perform in the market are two variables that are considered.”

Following the announcement of pricing, PayPal Inc. decided to purchase $500 million worth Uber’s common stock at IPO price through a private placement. Uber intends to use the amount raised for general business expenses, including working capital, operational and investment expenses. Still, the market value of the company ranked among record-breaking US debuts, preceded only by Alibaba’s $169 billion debut in September 2014 and Facebook’s $81 billion debut in May 2012, according to Dealogic evaluation the company’s IPO turned out to be the most extensive US offering since Facebook collected $16bn in 2012.

Chinese e-commerce firm Alibaba Group was funded to the tune of about $25 billion in 2014, while Visa successfully amassed around $18 billion in 2008. Uber’s platform has about 93 million active customers (an increase from 70 million a year earlier). The firm boasts of finishing 17 million journeys a day across 700 cities on six continents. The company has been mostly reporting a loss in the recent quarters. In the previous quarter, the company recorded a net loss of roughly $1 billion on revenues of $3 billion to $3.1 billion.

Last year, Uber recorded an operating loss of about $3 billion, lower than the net operating loss of $4 billion in the year before. Its revenue rose from $7.9bn in 2017 to $11.3bn in 2018. On Friday, May 10th, Uber shares started trading on the New York Stock Exchange under the ticker “UBER.”  The stock, however, had a tough first-day ride.  The company’s shares fell about 8% but reversed much of its losses within an hour of first trading.

Uber is the first firm with a $4 billion-plus IPO to settle below its offer price as per Dealogic data. The company offloaded 191 million shares via IPO which means recorded an overall loss of $655 million. Chief Executive Dara Khosrowshahi, who was present when the stock made its debut on the NYSE trading floor, attempted to soothe shareholders by referring to the company’s growth opportunities and development plans.

Khosrowshahi said: “My reaction (to the share price) is if we build and build well, shareholders will be rewarded. We’re certainly not measuring our success over a day, it really is over the years.”

That said, shares sliding below its IPO price is not uncommon on the day of listing in the secondary market. In 2019, ten businesses have encountered a similar situation. Current macroeconomic conditions are not coming to the aid of Uber. The US hiked duties on China on Friday as Washington’s recent round of trade discussions resulted in little progress. As a result, this week, the Dow dropped 3%, mainly due to investors’ concern that the US-China trade agreement would collapse.

On the prospects of the company, Robert Johnson, professor of finance at Heider College of Business, Creighton University in Omaha (Nebraska), said: “The business is unprofitable, new entrants can enter the market, there is a potential regulatory risk, and it is very price sensitive. What is there to like about this opportunity?”

Technically, the stock is trading below its 50-day moving average. Furthermore, the MACD indicator has a negative reading. As a result, we can expect the stock to remain bearish in the short-term.

ube - technical analysis - 13th May 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Janine

Janine

Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be


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