Uber slump after IPO points to concern about business model, profitability

Global Business

It’s been a rough ride for Uber since the company went public. Its shares fell as to as low as $36 from the listing price of $45.

And though they recovered some of that it’s still been a disappointing performance. Analysts said concerns about Uber’s business model and long-term profitability have hurt the stock. CGTN’s Giles Gibson reports.

It was all smiles as Uber executives rang the opening bell at the New York Stock Exchange on the day of the company’s initial public offering.

But out on the trading floor, there were whispers about its finances and business model.

Some analysts said Uber’s IPO was already set up for disappointment after being hyped-up.

The fact that Uber’s IPO was not the success story that it should have been isn’t really about the fundamentals of the company today, said Arun Sundararajan, Professor of Business at New York University. “It’s more about the fact that their valuation got too high too fast in the past and that severely constrained their ability to set a fair price for their IPO when they went public.”

Uber’s CEO Dara Khosrowshahi put the disappointing IPO down to the U.S.-China trade talks which hit an impasse the very same day Uber went public. But he insisted the company is measuring success in “five to ten years, not in one day.”

But other Wall Street insiders, like Santosh Rao with Manhattan Venture Partners, does see weaknesses in Uber’s fundamentals right now.

In 2018, the company’s revenue was up by 43 percent from the year before – but that growth in revenue is slowing down.

“That’s a huge problem for a company valued at $80 billion, which is what they wanted to do at the time. So when you’re priced for perfection at that level you can’t show revenues – ok, with profits, we can wait. We’ll believe you, we’ll give you the benefit of the doubt about profits. But, revenue? That’s your thing, you’ve got to grow that,” said Rao.

This year, Uber has been paying out around $100 million per month in driver incentives. They’re doing that to encourage drivers to stick with Uber, instead of switching to Lyft or another competitor. But Sundararajan said Uber can’t keep pumping that amount of cash into driver incentives forever.

“Ten years from now, if Uber is still spending the same amount of money on driver incentives, then they probably won’t be in business. They have to build both passenger and driver loyalty, in ways other than paying them more to drive on our platform or charging below cost to use our platform,” he said.

Just before Uber’s IPO debut, drivers around the world went on strike for better wages and working conditions.

Uber has already tested its vision of self-driving cars replacing those drivers, but like profitability, that could still be several years down the road.