December 11, 2018

Breakingviews: Uber and Lyft race to get through open IPO window

by Breakingviews.

Uber and Lyft are jockeying for pole position to get through the window for initial public offerings while it’s open. The ride-hailing companies have made confidential filings for deals that could value the former at up to $120 billion and the later at more than $15 billion. Yet the frightful experience of Moderna, which plunged nearly 20 percent in its first day of trading last week after the biggest float ever in the biotech sector, shows demand for cash-burning firms is limited.

Uber has grown absurdly fast thanks to plentiful private capital. It had nearly $13 billion in gross bookings in the third quarter, about a third larger than the same period a year ago. Yet it lost $1.1 billion in that period. It is locked in a fierce competition with Lyft in a bid to prove that heft in the disruptive young business will eventually produce outsized profits. Until then, Uber and rivals in various markets worldwide are burning oodles of cash to subsidize growth, and buy their way into new ventures like scooters, meal delivery and autonomous driving.

The novelty of the public offerings could attract investor interest to Lyft if it manages to get to market first, while Uber’s domination of the United States and other markets is a potentially strong selling point.

But these firms won’t be alone. There are nearly 300 private startups valued at $1 billion or more, according to CB Insights. The likes of Airbnb, Slack and WeWork are expected to try to go public in 2019, but only the first manages to turn a profit.

New issues have already raised $49 billion so far this year, more than all of last year, according to Refinitiv data. An offering by Uber, which was valued at $76 billion in its last private fundraising, would probably be the largest IPO since Alibaba’s record $25 billion deal four years ago. But risk appetite is drying up. The broad market has entered a correction while existing semiconductors and biotechnology stocks are flirting with bear territory. Given that it takes an emerging growth company about four months after a filing to float, the rush for the IPO window may only get worse. In this climate, the duel between Uber and Lyft risks a nasty collision with reality.

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