Uber shares close down 8% amid doubts on future profit

Uber shares close down 8% amid doubts on future profit

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Dara Khosrowshahi, Uber, IPO, Markets, Business
Uber CEO Dara Khosrowshahi

Uber hit a few potholes on its first day of trading on the US stock market, closing down 8% and reflecting lingering doubts about its prospects for profitability.

The ride-hailing company injected investors with a dose of reality right from the start, trading at $42 a share — or nearly 7% below its IPO price of $45 dollars on an already volatile day for the markets. Its shares closed at 41.57 dollars.

Related: Uber values itself over $82bn ahead of IPO

Despite the rocky debut, Uber CEO Dara Khosrowshahi said he was thrilled to complete the IPO, adding that the $8.1bn that Uber raised in the process would be crucial to its future growth plans.

“It’s a great moment for the company and all the employees who have been working so hard to get here,” Mr Khosrowshahi said. “It was a tough week to go public, but we got it done.”

Uber’s IPO price was lower than initially expected, and the caution may have been driven by escalating doubts about the ability of ride-hailing services to make money since Uber’s main rival, Lyft, went public six weeks ago.

Jitters about an intensifying US trade war with China also contributed. Stocks were down sharply on Friday morning after the two countries failed to reach a deal before a tariff deadline, but finished with gains.

Despite the volatile market, Mr Khosrowshahi said he did not consider postponing Uber’s IPO date.

“Our company is not a fair-weather company,” Mr Khosrowshahi said. “We keep moving forward in tough and easy environments, and I think that we as a company will be a great investment over the long term.”

It is not the first time a company’s stock has started off trading below its IPO price.

But it is relatively uncommon for US technology companies backed by venture capital, like Uber. Over the past five years, just 10% of such companies finished their first day of trading below their IPO price, said Matt Kennedy, senior IPO market strategist at Renaissance Capital, a manager of IPO focused funds.

“We were not expecting much of a pop, given the size of the deal” for Uber, Mr Kennedy said. “The last US company of this size to IPO was Facebook, for example, and you may remember how that traded initially.”

Facebook debuted in 2012 and, after technical difficulties delayed its start to trading, it ended its first day just 23 cents above its IPO price of 38 dollars.

“Unlike Facebook, however, Uber does not make money,” Mr Kennedy said. Facebook’s stock now trades just below 200 dollars.

Uber’s cash infusion will help cover the cost of giving rides to passengers at unprofitable prices as it tries to fend off competition from Lyft. The San Francisco company already has lost about 9 billion dollars since its inception in 2009 and acknowledges it could still be years before it turns a profit.

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