Lyft’s stock slide casts long shadow on Uber’s IPO

Lyft’s IPO priced at the top end of its upwardly revised range last month, assigning it a valuation of more than $24 billion in an offering that raised $2.34 …

By Joshua Franklin and David Randall

(Reuters) – Uber Technologies Inc may face a cooler reception from investors than expected when it prices its initial public offering next month since smaller U.S. ride-hailing rival Lyft Inc’s aggressive stock launch and subsequent fall.

Lyft’s IPO priced at the top end of its upwardly revised range last month, assigning it a valuation of more than $24 billion in an offering that raised $2.34 billion. But the stock has languished since debuting on the Nasdaq on March 29, as concerns about the startup’s potential for profitability have become more prominent.

Lyft shares ended on Wednesday down 11 percent at $60.12, well below their $72 IPO price. Lyft was the first in a string of technology IPOs expected this year, including food delivery service Postmates and smart exercise bike Peleton.

Lyft’s poor stock performance bodes ill for these IPOs, especially for companies like Uber with no profits to show.

“There’s no discernable way these companies are valued. What you’re really buying into is the long-term ability of the company to capture lots of sales and hopefully get profitable at some point,” said Brian Hamilton, founder of data firm Sageworks.

“I’m sure that the Lyft debut is going to affect both Uber and Pinterest,” Hamilton added.

Uber filed for its IPO in December with the U.S. Securities and Exchange Commission during the same week as Lyft. But it let Lyft go first with its offering, partly because it was working on a new private fundraising round for its autonomous driving unit.

Uber is now paying the price of going second. It is planning to seek a valuation between $90 billion and $100 billion, short of the $120 billion investment bankers previously told the company it could be worth in an IPO, Reuters reported on Tuesday.

Image sharing app Pinterest Inc this week also set the terms for its IPO which would value the company at up to $11.3 billion, below its latest fundraising round which valued it at $12 billion in 2017. Prior to Lyft going public, Pinterest had been weighing a valuation at or near the last fundraising round, according to a source familiar with the matter. Pinterest declined to comment.

Uber is expected to make its detailed financial results public on Thursday. It lost $3.3 billion last year, excluding one-off gains, while Lyft lost $911 million for 2018. Pinterest also lost $62.97 million in 2018.

Uber declined to comment.

GETTING GREEDY

Investors and analysts said technology unicorn IPOs are losing their luster, not just because more investors are asking tough questions about their prospects, but because the startups overestimated pent-up demand for their offerings.

“Lyft wanted to be first… and it got to a point where they got so aggressive with their pricing and they got kind of greedy,” said Catherine McCarthy, an Allianz Global Investors research analyst.

The pressure to become profitable will ratchet up once these companies become public, said Jordan Stuart, a portfolio manager for Federated Kaufmann funds who often purchases companies’ stock in the IPO.

“The pace of change is happening so quickly that you have to show that you can become profitable quickly,” Stuart said.

“Some of these companies could go away tomorrow because it’s just an app on my phone and I can find another one in a second to get to work or have food delivered.”

(Reporting by Joshua Franklin and David Randall in New York; Additional reporting by Jennifer Ablan in New York; Editing by Cynthia Osterman)

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The Uber IPO Will Be Like Chernobyl For The IPO Market

Uber’s infamous founder Travis Kalanick is on a walkabout somewhere likely plotting his revenge the very day his non-compete expires. Right now …

Remember a long time ago — like 11 whole days — when Lyft went public at a nosebleed valuation despite hemorrhaging money and genuine confusion on The Street about how it would ever make money?

Well, this is how that whole thing played out:

Lyft is in a freefall after pulling out of a freefall. The latest tech unicorn IPO with no profit, no clear indication of how future profits would be generated, and codified disinterest in letting shareholders tell them how to be profitable. Essentially, we’ve spent five years watching wildly overvalued tech startups attempt to raise capital in the public markets without having to behave like a public company.

It’s gone very badly.

So, after the IPOs of Etsy, Snap, and Blue Apron — is the market finally ready to capitulate to reason and make adult choices with all this cheap money we have lying around thanks to still very low interest rates?

Well…

Uber Technologies Inc has decided it will seek to sell around $10 billion worth of stock in its initial public offering, and will make public the registration of the offering on Thursday, people familiar with the matter said on Tuesday…

Uber is seeking a valuation of between $90 billion and $100 billion, influenced by the poor performance of smaller rival Lyft Inc’s shares following its IPO late last month, the sources said. Investment bankers previously told Uber it could be worth as much as $120 billion.

What a staggeringly stupid way to say “No.”

You guys remember Uber, right? The prodigal son of tech unicorns. The original genuine bad boy mega-startup infamous for how synonymous it became for the kind of venal, nerd frat behavior that is only acceptable in finance and Biglaw. The very same Uber that raised over $24 billion in private equity before losing its CEO and most of its board to an aforementioned neverending parade of scandals and what we assume is referred to in corporate law-speak as general dumbassery.

Uber is also Lyft’s bigger, badder competitor and the IPO that Wall Street had been waiting on for years before Lyft came to market. So, with Lyft pooping the allegorical bed less than two weeks into life as a public company we have to assume that Uber must be doing great if it thinks its about four times more valuable than Lyft. Or it must be, at the very least, not posting annual losses like Lyft or the other aforementioned disaster unicorns:

Uber last year had revenue of $11.3 billion, while gross bookings from rides was $50 billion. But the company lost $3.3 billion, excluding gains from the sale of its overseas business units in Russia and Southeast Asia.

A $100 billion valuation for a company that made -$3.3 billion last year? Is everyone f***ing high?

And what makes this weirder is that Uber isn’t even peddling the upside of a messianic founder hellbent on keeping his brainchild “dispruptive” and “revolutionary.” Probably because that BS only makes sense if the messianic founder is still at the company. Uber’s infamous founder Travis Kalanick is on a walkabout somewhere likely plotting his revenge the very day his non-compete expires. Right now, Uber is being run by Dara Khosrowshahi, the platonic ideal of the guy you bring after a bad IPO to right the ship. His very presence is a clear indicator to most anlaysts that Uber feels its days of visionary thinking are behind it. In fact, Khosrowshahi’s biggest role on the coming IPO roadshow will be to brag that Uber has gone months without media reports of inexcusable sexual misconduct at his company.

But we would argue that the one question that everyone should be asking Khosrowshahi is why Kalanick was so determined not to take Uber public ever. What did he know that his successor doesn’t? Has there been a fix to the whole problem with the inherently bad revenue structure that takes in massive gross revenues and then bleeds it into startling net losses? That -$3 billion thing would say not. Travis didn’t want to offer shares until he had cars that drove themselves. Where are you at there, Dara?

Nothing pleases us more than drawing big, simplistic comparisons between all of these disastrous tech IPOs, but we can only draw a few with Uber. Not because Uber is better, but because it is so much worse. What we’ve seen so far has been merely a chain of small, preventable explosions acting as an ominous prelude to the Chernobyl that will be the Uber IPO.

Uber is asking for the most capital while losing the most money, exhibiting the least likely possibility for growth, still reeling from its messy creation story and looking at a data set that conclusively shows ridesharing IPOs are not super hot right now.

What Uber is doing is what almost every tech unicorn IPO in the last five years has done: ask the markets to ignore fundamentals or basic reason, and instead layer their appetite for risk on something cool over the fact that money is still super cheap. It hasn’t worked so far, but Uber is looking at the calendar, figuring that the dark economic days are almost upon us and daring investors to take their chips and go all in on something that they were horny for two years ago.

It’s going to be a cataclysmic sh**show.

Uber’s IPO will be oversubscribed in a matter of hours, the thing will pop immediately upon opening trading, dive like a Boeing 757 on day two and bleed out massive amounts of value slowly for months before popping a week before lockouts expire, and then implode. We’ve seen it before, but never at this scale, and the sheer carnage of a $100 billion Blue Apron on wheels will maybe even cure us of this illness.

But hey, it’s not going to to be boring.

Exclusive: Uber plans to sell around $10 billion worth of stock in IPO – sources [Reuters]

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McDonald’s, Nvidia and Salesforce all want a bite of the Tel Aviv tech crop. Here’s what you need …

In mid-March, the US chip company Nvidia announced an eye-popping $6.9 billion acquisition of Israeli semiconductor company Mellanox, …

In late March, McDonald’s announced its $300 million-plus acquisition of Dynamic Yield, an Israeli startup that uses algorithms to personalize shopping experiences to the individual.

The Golden Arches were a surprising new home for the eight-year-old company, which launched as a publisher-focused project at Bessemer Venture Partner’s office in Tel Aviv, before picking up speed with retailers like Sephora and Ikea.

McDonald’s isn’t an obvious tech acquirer, but its recent purchase fit the Israeli exit model to a T.
Wikipedia/Gueztoub

Fast food chains aren’t known for their software-as-a-service offerings, and cheeseburgers aren’t even kosher. But at $300 million, Dynamic Yield’s sale fit perfectly into the Israeli tech scene’s template for a successful outcome.

“I call that our bread and butter, in terms of exits,” said Adam Fisher, founding partner at Bessemer Israel, which has had 13 exits (acquisitions or other transactions that let VC backers cash in their investments) since launching the firm’s Israeli outpost in 2007. “Below $100 million, it’s hard to make an impact. Above $500 million — we all aim for that, but it requires a special kind of company.”

While founders and investors in Silicon Valley pursue $100 million venture capital rounds at billion-dollar valuations, their peers in Israel — affectionately dubbed the “51st state” — tend to eschew hypergrowth and world-domination for the security of a corporate parent company.

In 2018, there were 61 exits of venture-backed Israeli tech companies, with an average deal size of $81 million, according to consulting firm PwC, which excluded deals valued under $5 million from the study. Fifty-two of those exits were acquisitions, while just nine companies, primarily in biotech, opted to sell shares to the public.

“When I joined the industry 15 years ago, it was really rare to see a $200 million exit. Nowadays, a $200 million exit is the lower bottom,” said Natalie Refuah, an investor with Viola Growth, which led Dynamic Yield’s $38 million Series D just months before it got acquired.

“I do think that this is increasing and probably in the years coming it will be a higher amount,” Refuah said. “We are great believers in the billion dollar company.”

Billion-dollar exits are rare

American tech corporations like Google have had a big impact on the Israeli tech ecosystem.
Israeli Government Press Office/Getty

The impact of American corporate M&A on Israel can be charted across the Tel Aviv skyline. Amazon, Microsoft, Apple, Google, IBM and Cisco all have large research and development facilities in the city or just outside in Herzliya, an affluent suburb that draws frequent comparison to Silicon Valley’s Menlo Park.

Intel, the chipmaking goliath which opened its first Israeli office in 1974, is the country’s largest tech employer. The company’s footprint in Israel has increased thanks to a combination of organic growth and acquisitions, including its eye-popping 2017 acquisition of autonomous vehicle chip company Mobileye for $15.3 billion.

For Leonard Rosen, CEO of Barclays Israel, it’s the big deals that keep things interesting. At the end of February, Rosen and his team closed KLA’s $3.4 billion acquisition of the semiconductor company Orobtech, for whom Barclays was the exclusive advisor. That deal was delayed nearly a year after it was first announced due to regulatory holdups in China.

“A lot of these companies will buy here just so they have a stake to start looking at other companies and earlier stage companies, and keep ahead of the game,” said Rosen from his office in Tel Aviv, just hours after news broke about Nvidia’s $6.9 billion acquisition of the publicly-traded chip company Mellanox.

It was Nvidia’s first big move in the country, and it beat out both Intel and Barclay’s own reported client Xilinx in the process.

“Competition is really tough in the world, and Israel has an advantage. If you don’t have a presence here and your competitor does, you’re potentially missing out on technologies that will help you lead,” Rosen said.

Scaling big means leaving Israel

The strong American presence has its pros and cons for the local startup scene. As in Silicon Valley, cohorts of ex-employees tend to leave tech giants where they get their start with a dream to build the next big thing. And more startup exits means more wealthy founders and investors who recirculate that capital into other startups.

But anecdotally, industry people lament that Amazon’s new office in the Sarona Tower, the largest skyscraper in Israel, has driven up wages for talented engineers.

Read more: Half of all US startups expect to get acquired, but the number of companies that don’t have a plan is growing

And Silicon Valley’s appetite for Israeli startups may be nipping growth potential. There were just four acquisitions valued at more than $1 billion in 2018, and all four of those acquisitions were a second-exit for a company that had already gone public or was owned by a strategic acquirer. It’s just not very common for an Israeli tech company to get that big.

Fisher, an early backer in Wix before it had the biggest IPO in Israeli history, thinks founders have good reasons to exit before reaching the acclaimed “unicorn,” of $1 billion valuation, status. While Israel has tons of engineers, most tech companies need to build out sales and marketing teams in the US once they surpass $15 million to $20 million in revenue, he said. Oftentimes, the CEO needs to relocate to California.

Growing that big takes a lot of work, Fisher said, and a couple hundred million dollars isn’t nothing.

“As much as capital is flowing into Israel, I think everybody here is cognizant of the fact that that could change over night,” Fisher said. “We live in a volatile region of the world, we know that people get skittish all of a sudden. We’re highly dependent on foreign capital. And sometimes, a bird in the hand is what you want to go with.”

Talent is key for corporate acquirers

Mellanox CEO Eyal Waldman, center, took his company public before selling to Nvidia for $6.9 billion in March.
JACK GUEZ/Getty

For the corporate acquirers, it’s a pretty good setup.

John Somorjai, executive vice president of corporate development at Salesforce, said the company has found success building out its research and development operations in Israel. The San Francisco giant has bought four Israeli startups since 2011, including its July 2018 acquisition of Datorama for $800 million, one of the biggest deals of the year.

“What we found is that we’re able to hire incredible talent in Israel, and they’ve made a lot of contributions, specifically to our AI innovation,” Somorjai said.

Though Datorama was fairly large, Somorjai said that the sweet spot for most Israeli startups to sell is when they are “sub-scale,” before they’ve built large go-to-market organizations that can tackle global sales.

Somorjai, who’s based in San Francisco, said he travels to Tel Aviv twice a year to meet with employees, founders and venture capitalists, and his team in London makes more frequent trips because of the proximity. Beyond acquisitions, Salesforce has made 12 venture investments in Israeli startups, including Redkix, a small email startup that Facebook bought last summer.

IPOs are rare but that could change

Despite the Israeli ecosystem’s drive toward exits, the IPO well has been more or less dry over the last few years. Just nine Israel tech companies went public in 2018, and of those seven were in the life science sector, according to PwC.

However, that could all change in the next few months.

“In IPO, there’s always been heights and downs. And for many years, the IPO was closed for Israeli tech companies,” said Refuah. “I hope that it’s changing. It looks like there are signs that it’s opening but it’s yet to be seen.”

Already, 2019 is starting strong. The cybersecurity company Tufin will kick off the year with an IPO on Thursday, where it will list on the New York Stock Exchange. The company is expected to see a market cap around $500 million.

Read more: Meet the jet-setting Goldman Sachs banker who led Qualcomm through a hostile takeover, got stuck in Trump’s trade war, and made magic happen across the semiconductor industry

Payments company Payoneer, a rare Israeli unicorn, has reportedly hired a bank to mull over a possible IPO, and the cloud company Zerto is reportedly considering its own listing in New York. The freelancing marketplace Fiverr has also reportedly hired banks for its own public offering at around an $800 million valuation.

Most companies considering an IPO will look to New York, and other foreign exchanges in London and Australia for their listings, rather than the local exchange in Tel Aviv.

Whether this crop of companies make it to the public markets before attracting interest from a big acquirer is yet to be seen.

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Uber’s $100 Billion IPO Is The Final Symptom Of A Very Dumb And Very Fatal Disease

Right now, Uber is being run by Dara Khosrowshahi, the platonic ideal of the guy you bring after a bad IPO to right the ship, a clear indication that Uber …

Remember a long time ago – like 11 whole days – when Lyft went public at a nosebleed valuation despite hemorrhaging money and genuine confusion on The Street about how it would ever make money?

Well, this is how that played out:

So, with this chart in mind – and what we learned from the IPOs of Etsy, Snap and Blue Apron – are we finally ready to capitulate to reason and make adult choices with all this cheap money we still have lying around?

Uber Technologies Inc has decided it will seek to sell around $10 billion worth of stock in its initial public offering, and will make public the registration of the offering on Thursday, people familiar with the matter said on Tuesday…

Uber is seeking a valuation of between $90 billion and $100 billion, influenced by the poor performance of smaller rival Lyft Inc’s shares following its IPO late last month, the sources said. Investment bankers previously told Uber it could be worth as much as $120 billion.

We’ll take that as a “No.”

Ah, Uber. The prodigal son of tech unicorns. The OG bad boy mega-startup plagued by the kind of venal, nerd frat behavior that is only acceptable in finance. Lyft’s bigger, badder competitor and the IPO that Wall Street has been waiting on for at least five years. The very same Uber that raised over $24 billion in private equity before losing its CEO and most of its board to a neverending parade of scandals and general dumb shit.

And now, as Lyft – the most useful model that Uber could ever have-  poops the allegorical bed less than two weeks into life as a public company, Uber has decided that it will debut at an unprecedented valuation roughly four times what Lyft got.

So we have to assume that Uber is going great, not posting annual losses like Lyft or the other aforementioned unicorns:

Uber last year had revenue of $11.3 billion, while gross bookings from rides was $50 billion. But the company lost $3.3 billion, excluding gains from the sale of its overseas business units in Russia and Southeast Asia.

A $100 billion valuation for a company that made -$3.3 billion last year? Is everyone fucking high?

We have no idea if Uber is planning on using the tiered stock structure favored by its forebears. You know, the one that leaves all control in the hands of founders and gives almost no voting power to outside shareholders? But we assume they will at least flirt with it. And that’s very intriguing because the whole nonsensical notion of ceding control to a messianic founder only makes sense if the messianic founder is still at the company. Travis Kalanick is on a walkabout somewhere likely plotting his revenge the very day his non-compete expires. Right now, Uber is being run by Dara Khosrowshahi, the platonic ideal of the guy you bring after a bad IPO to right the ship, a clear indication that Uber feels its days of visionary thinking is behind it. In fact, Khosrowshahi’s biggest role on the coming IPO roadshow will be to brag that Uber has gone months without media reports of inexcusable sexual misconduct at his company. 

In fact, the one question that everyone should be asking Khosrowshahi is why Kalanick was so determined not to take Uber public ever. What did he know that his successor doesn’t? Has there been a fix to the whole problem with the inherently bad revenue structure? That $3 billion thing would say not. Travis didn’t want to offer shares until he had cars that drove themselves. Where are you at there?

Nothing pleases us more than drawing big, simplistic comparisons between all of these disastrous tech IPOs, but we can only draw a few with Uber. Not because Uber is better, but because it is so much worse. What we’ve seen so far has been merely a chain of small, preventable explosions acting as an ominous prelude to the Chernobyl that will be the Uber IPO.

Uber is asking for the most capital while losing the most money, exhibiting the least likely possibility for growth, still reeling from its messy creation story and looking at a data set that conclusively shows ridesharing IPOs are not super hot right now.

What Uber is doing is what almost every tech unicorn IPO in the last five years has done; ask the markets to ignore fundamentals or basic reason, and instead layer their appetite for risk on something cool over the fact that money is still super cheap. It hasn’t worked so far, but Uber is looking at the calendar, figuring that the dark days are almost upon us and daring investors to take their chips and go all in on something that they were horny for 2 years ago.

It’s going to be a clusterfuck of epic proportions.

Uber’s IPO will be oversubscribed in a matter of hours, the thing will pop immediately upon opening trading, dive like a Boeing 757 on day 2 and bleed out massive amounts of value slowly for months before popping a week before lockouts expire, and then implode. We’ve seen it before, but never at this scale, and the sheer carnage of a $100 billion Blue Apron on wheels will maybe even cure us of this illness.

But hey, it’s not going to to be boring.

Exclusive: Uber plans to sell around $10 billion worth of stock in IPO – sources [Reuters]

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The Uber IPO Might Not Be as Big as You Thought. Blame Lyft.

The company has far better international reach than Lyft has. Uber recently purchased its largest competitor in the Middle East, the Dubai-based …

Uber brought in $11.3 billion in revenue last year. It also bled less red ink, reporting a loss of $1.8 billion based on earnings before interest, taxes, depreciation, and amortization, or Ebitda, compared with $2.2 billion in 2017.

The company has far better international reach than Lyft has. Uber recently purchased its largest competitor in the Middle East, the Dubai-based Careem, and owns a 17.5% stake in Didi Chuxing, the leading Chinese ride-hailing company.

Lyft shares have struggled since their hot debut. The stock closed Tuesday down nearly 4% to $67.44, well below its peak in the high $80s. That performance may have inspired Pinterest to seek a valuation in its own IPO lower than it achieved in its latest funding round.

What’s new. Uber will seek to sell $10 billion of stock at a price that would value the company at between $90 billion and $100 billion, according to the Reuters report. The company would likely issue most of the shares, though some of the stock sold would be from Uber investors cashing out, it said.

Uber was valued at $76 billion in its most recent private fundraising round, but investors thought the company might have sought a $110 billion valuation, or about 10 times its 2018 revenue. The lower number, according to Reuters, was influenced by Lyft’s poor performance.

Looking ahead. Selling stock at a lower valuation than investors had expected might attract attention, as well as scare away short sellers, but like Lyft, Uber still must prove it can become profitable. Venture-capital unicorns are risky bets for public investors.

Ride-hailing services will likely continue to play an important role in the future of transportation, but as Barron’s Al Root wrote in January, there are still questions investors should consider before they jump on the IPO bandwagon.

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