Friday was bad. But how’s Monday?
Uber’s agonizingly difficult first day as a public company was a cold shower for Silicon Valley’s hottest company, a dousing that drenches both the euphoria of selfie-happy Uber investors and maybe the hopefulness of other startups preparing to follow it to their own IPOs.
But Silicon Valley should wait a few months before flooding itself in its tears and dire premonitions.
To be sure, it was ugly. Uber closed its first day of trading down more than 7 percent — a costly fall that sent Uber shares below its already scaled-back IPO price and tumbling toward a market capitalization of merely $70 billion, lower than the valuation in its last private round of financing. And more symbolically, Uber’s sell-off was embarrassing for an IPO process that is typically so carefully produced and stage-managed, especially given that Uber has been the iconic startup of its vintage in Silicon Valley.
The average US-listed tech IPO since 2010 has “popped” — the uptick in a stock’s price on its opening day — by about 23 percent, according to Dealogic. In fact, Uber’s decline makes it one of the eighth-worst performing US tech IPO that raised more than $1 billion of all time, per Dealogic data.
About one-quarter of US-listed IPOs since 2010 have ended up underwater after their first day, Dealogic says.
So, yeah, it was bad. But how much does it really matter?
For starters, most of Uber’s prior shareholders cannot sell their stock for six months due to what’s called a lock-up period, meaning that while their shares might be underwater on May 10, 2019, it’s purely a theoretical consideration. It’s not as if they could sell them for a profit if Uber stock had spiked on Friday. So if Uber crawls around in negative territory from now until November, then employees are in their rights to grab the pitchforks.
Some argue that Uber’s troubles on Friday had little to do with Uber specifically. The S&P 500 had its worst week of 2019 amid US-China trade tensions. Competitive companies like GrubHub, Uber’s chosen parable of Amazon, and Lyft all fell in Friday trading, with Lyft continuing its post-IPO malaise by declining by 7 percent, just like Uber did.
But there’s also a long list of companies who totally flopped on their public market debuts only to have the long, last laugh over the next few years. The exemplar is Facebook, which basically closed at its IPO price — and $4 less than its opening trade — in 2012, a performance deemed to be disastrous in advance of a year considered rough and tumble.
Today, Facebook is a $540 billion behemoth, and trades at over three times its stock price from its IPO woes.
Things weren’t prettier at Google, which “had to lower its offering price to $85 in the face of a deteriorating stock market and the skepticism of institutional investors,” as the New York Times described in 2004. Google’s parent company, Alphabet, is now valued at more than $800 billion.
That’s a long way of saying that while the IPO day is often compared to a college graduation — signifying a startup’s maturation to a fully independent, adult public company — let’s remember that more than a few among us are not fully-independent adults when we graduate college. There is maturation still to go, and thankfully we are not judged by our first jobs or first apartments — nor are our obituaries indelibly written based on our graduation-day accomplishments (or lack thereof).
There is a tendency to hyperbolize and draw broad conclusions about a company’s future based on things like a company’s IPO price range, or the IPO price it lands upon, or its performance the first day of trading. But Uber’s value will be determined by things like whether it can ever hit profitability, whether it can keep growing market share in ride-hailing or in frontier areas like food delivery and freight, and by the future of US public markets amid increasing tensions with China. That stuff doesn’t get settled in a day.
So while that offers little consolation to those who funneled $8 billion into Uber on its opening day — and now immediately are licking their wounds — it’s more a black-and-blue mark than a broken bone. No surgery required. Just time.
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Author: Theodore Schleifer