You can't really say it's been a rough IPO market, with many names performing quite well since going public. Zoom Video (ZM) - Get Zoom Video Communications (ZM) Report , Pinterest (PINS) - Get Pinterest, Inc. Class A Report and others have been strong thus far. However, we can say it's been a rough IPO market for ride-hailing services as both Uber (UBER) - Get Uber Technologies, Inc. Report and Lyft (LYFT) - Get Lyft Inc Class A Report have seen strong selling pressure since making their debuts.
Lyft opened for trading near $88 in late March and is quickly down $40 a share six weeks later to $48 on Monday. The stock is down about 6% on the day and is making new 52-week lows on the session. Uber isn't far behind, with shares down more than 11% on the day to $37. Shares are making new lows and are well below the $45 IPO price at this point. If fact, both stocks have similar action two days in, with the exception that Lyft opened well above its IPO price before fading lower.
It's got investors shaking their head and asking, "What's Uber stock really worth?" Unfortunately, that's not such an easy answer.
Granted, Uber couldn't have gone public at a worse time -- at least in the short term. That said, even when the market was posting a big upside reversal on Friday, the day Uber went public, the ride-hailing stock couldn't even bounce back over its IPO price.
The performance has been ugly and that's putting it nicely.
The action also reminds me a bit of when Facebook (FB) - Get Facebook, Inc. Class A Report -- another high-profile IPO -- went public in May 2012. The stock closed at its IPO price of $38 on its first day of trading and saw a wave of selling in the following session. Shares would eventually fall more than 50% in the next three months, setting up what was an amazing buying opportunity in hindsight (FB stock is still about 10-fold from its post-IPO lows).
I don't know that we'll see Uber fall 50% from its IPO price, but with shares down 17.7% in two days, it sure is trying!
In the buildup to Uber's IPO, the company was looking to fetch a valuation as high as $120 billion. That would ensure that even its latest round of investors -- for which there have been so many rounds for a private company -- would be able to exit with a handsome profit. After seeing the reaction to Lyft's IPO, Uber had to become more conservative with its IPO but was still aiming for a $90 billion to $100 billion valuation.
At one point, valuation expert Aswath Damodaran of NYU said the company is worth much less than that, pegging its valuation at around $60 billion.
That puts the company at about 5.3 times 2018 total revenue, which grew almost 40% from the prior year. "If there is anything positive that can be extracted from this table [referencing Uber's annual EBITDA data], it is that the losses are decreasing as a percent of sales, over time," he wrote.
Uber's a tough one because there aren't many comps on the public market. Besides Lyft, what else do we compare it to that's a U.S. traded stock? All investors have to go on is Lyft's recent performance and earnings result. There's also the fact that they both lose a lot of money. In 2018, the company had an operating loss of $2.8 billion and while that's improvement from the prior year's operating loss of $3.8 billion, it's still a big concern.
In this type of market where investors have more questions than answers, companies like Uber fall into the sell first, examine later pile.
Will we see the 40%+ beating that we've seen in Lyft? If so, that would bring Uber below $30 a share and its market cap down below $50 billion, as its market cap presently hovers near $62 billion. While that may seem like an unlikely scenario, just remember how far the stock has fallen thus far. Should the market selling accelerate in the coming days and weeks, it doesn't look like Uber stock will be a safe place to hide.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.