In this preview video, The Banker's capital markets editor Kat Van Hoof talks to Joy Macknight about the appeal of big tech listings for investors, despite some major red flags. TheBanker.com video above published Apr 30, 2019.
Editor's note: Uber (NYSE: UBER) (uber.com) is expected to start trading this week, Thursday or Friday, May 10, 2019. With pricing in the range of $44 to $50 a share, the company is setting a valuation range of $80B to $91B vs. initial expectations for $100B or more. Uber's operating loss of $3B last year on $11.3B in revenue and negative free cash flow of $2.1B, have not deterred investors who usually cite Uber's scale and market-leading ridehailing position, its fast growing UberEats (ubereats.com), and a promising freight brokerage (uberfreight.com) business.See also on Domain Mondo:
And elsewhere:
- SEC Edgar search results for Uber Technologies, Inc.
- What Uber Left Behind in Asia--Emerging markets outshine the U.S. in ride-hailing, as the burgeoning success of Go-Jek and Grab shows--bloomberg.com.
- Lyft First Quarter (Q1) 2019 Earnings LIVE Webcast, Tuesday, May 7, 2019, 5pm EDT
YouTube Transcript (edited for correctness by DomainMondo.com)
00:00 [Music]
00:06 hello and welcome to the preview of the
00:09 May issue of the banker I enjoy McKnight
00:11 managing editor and I'm joined by Kat
00:14 van hoof Investment Banking and capital
00:16 markets editor this month's cover story
00:18 takes a closer look at the big tech
00:20 unicorn listings taking the market by
00:22 storm cat thanks so much for joining us
00:24 today so tell me a little bit about
00:27 what's happening we have recently lyft,
00:30 pinterest, slack have gone to the
00:33 market with their initial public
00:34 offerings and uber is also coming to
00:36 market why are they all coming to market
00:39 now well as usual it's a bit of a
00:40 confluence of different things so these
00:43 companies have been in the market have
00:45 actually been around for quite a long
00:46 time now we we use these apps every day
00:48 and they've done really large private
00:51 funding rounds so they've gotten to a
00:52 stage in the life cycle where an exit is
00:55 sort of the next logical and sometimes
00:57 only step because they're too big for
00:59 another round but there's also a little
01:00 bit of a function of the market where
01:02 things are still a bit benign monetary
01:05 policy is still very supportive but
01:07 maybe a year or two down the line things
01:09 starting to look a bit more shaky and so
01:12 if you want to do a bit more of a risky
01:14 IPO for a high-growth public offering
01:18 like this now is probably a good time to
01:21 be to be looking at this rather than a
01:23 little bit further down the line okay
01:25 but lyft was the first one to go and it
01:27 hasn't done that well in the after
01:29 markets you know what does what does
01:31 that signal for the ones coming through
01:33 so normally when you have a couple of
01:36 IPOs in the same sector and one of them
01:38 goes first and doesn't do very well it
01:40 usually puts a bit of a damper on the
01:42 rest of the listings down the line well
01:44 we in this case it wasn't quite so
01:46 straightforward lyft and do very well it
01:49 popped on the first day it listed a
01:52 little bit above its initial price range
01:53 and then popped on the first couple of
01:55 days but sort of since then hasn't been
01:57 doing very well but then Pinterest
01:58 listed a couple of weeks later and has
02:02 been doing a little bit better so
02:03 normally I would say well it's not a
02:06 good signal especially for uber which is
02:08 in the same sector it's also a right
02:10 ailing company but it's hard to tell
02:12 because sometimes they can
02:13 the case that investors just don't
02:15 really like lift but might like uber but
02:17 it or it can be a bigger signal of them
02:19 not really feeling all that confident
02:21 about this type of IPO and there are a
02:24 few questions about sort of the
02:26 sustainability of their business models
02:28 which are definitely making things a bit
02:29 harder for these IPOs well that is a big
02:31 problem isn't it because none of these
02:33 companies are really profitable and the
02:35 big sense you know what what challenges
02:38 that does that pose in investors in
02:41 these companies so the profitability is
02:43 a big thing and usually if a company has
02:47 a lot of structural growth investors are
02:49 happy to overlook a lack of
02:51 profitability but there are a lot of
02:53 questions being asked you know these
02:54 companies aren't like Google that listed
02:56 very early on in their lifecycle they
02:59 are listening as more mature companies
03:00 and still haven't quite gotten over that
03:03 profitability hurdle there's a lot of
03:05 questions being asked about the revenues
03:07 growing exponentially but also the loss
03:10 is deepening because the costs are still
03:11 very high there's a lot of money being
03:14 thrown at sales and marketing so long as
03:16 there's growth I think investors will be
03:18 happy with it but once you list that
03:20 pressure to turn that profit is going to
03:23 be definitely doubling down for these
03:26 companies so alongside a few other red
03:30 flags this is definitely one of the
03:31 major concerns
03:32 well another red flag is really around
03:34 governments you know how much is that
03:36 making an impact on how successful these
03:38 IPOs will be yeah governance is a
03:40 massive theme in investment and it's
03:43 only going to get bigger it's only you
03:44 know it's a one-way street it's not
03:46 coming back by its nature there's a lot
03:48 of key man risk you take you man because
03:50 they know there's a lot of a CEOs tend
03:52 to be men but there's a lot of key man
03:54 riskier by its nature where it's run by
03:58 a very charismatic of an entrepreneur a
04:00 set of entrepreneurs and while that is
04:03 great to get VC in a venture capital
04:05 funding private funding it might not be
04:07 sometimes have this great personality
04:09 cult it might not be the right thing for
04:11 a big listed company to have a sort of
04:13 combative or sometimes abrasive manner
04:17 and then on the other hand a lot of
04:18 these companies lyft for instance our
04:20 listing with dual class shares which
04:22 means that they they are selling shares
04:25 but not the equal amount of voting
04:27 right so the entrepreneurs retain a lot
04:29 of the control this can be helpful
04:31 because sometimes investors Cheryl
04:33 doesn't always understand the companies
04:35 as well but also it poses a great risk
04:37 in case something goes wrong
04:39 stockholders have a lot fewer tools at their
04:41 disposal to call the entrepreneurs to
04:43 account essentially excellent well thank
04:45 you so much for your insights to get a
04:47 copy of the May issue of The Banker
04:48 please go to thebanker.com.
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