Easily the most anticipated initial public offering (IPO) of what is already going to be an IPO-heavy year, Uber’s upcoming entrance into the public market is seen by many as one of the most exciting events of 2019.
You can imagine the surprise that many people had when they found out that the ride sharing company, which previously was rumored at having a valuation into the 9-digit range, chose to lower its valuation target to between $80 billion and $90 billion.
As reported by The Wall Street Journal, Uber Technologies Inc downgraded it’s target valuation, looking for a share price between $44 and $50 while trying to raise between $8 billion and $10 billion for itself through the IPO. Uber had previously given documentation to holders of its convertible notes that it was planning to set it’s target price higher, between $48 to $55 a share, putting the company closer to a $100 billion valuation.
This latest re-calibration for the company still puts Uber as the second-largest U.S. IPO in history, just behind Alibaba Group Holdings (NYSE: BABA). Lead underwriters of the IPO, Goldman Sachs and Morgan Stanley, both pitched possible valuations that put Uber closer to the $120 billion range, something which only helped to fuel market hype surrounding the deal.
One anonymous individual familiar with the arrangement said that Uber is planning to make the price range public in a filing on Friday morning. The exact price will be decided in the coming weeks as the company undergoes a series of pitch meetings with potential investors.
Additionally, PayPal Holdings Inc (NASDAQ: PYPL) had already invested around $500 million into the company. Already helping the ride-sharing platform process fares through its technology, PayPal is expected to further invest in Uber through a private placement at the IPO price in the weeks to come.
As analysts speculate why Uber chose to lower its valuation target, many have looked towards its second-largest competitor who recently went public. Lyft share’s struggled after emerging on the public markets as shares plunged following its IPO.
Currently, Lyft’s stock has declined 2.6 percent on Thursday down to $56.34, down 22 percent below it’s starting IPO price. The ride-sharing company went public with a valuation above what underwriters initial set, a move that, in retrospect, seems to have backfired.
While some initially speculated that investors held back a little in anticipation for Uber’s arrival on the public market, others have seen Lyft’s weak performance as a warning sign that Uber’s might not do as well. Some fund managers have been hesitant about potentially investing in Uber precisely because of Lyft’s decline, making them more uneasy about the larger ride sharing platform despite its stronger position financially.
At the same time, anonymous sources close to the IPO have said that a major investment from a tech giant like PayPay would signal a vote of confidence needed to shore up demand for Uber’s shares. Either way, Uber’s decision to play it safe and lower their valuation target seems justified all things considered.