Uber adopting more cautious approach in wake of Lyft's post-IPO struggles

Investor disappointment at Lyft Inc's growth outlook underscores the pressure for rival Uber Technologies Inc to show potential backers of its initial public offering that it can expand services such as food delivery even as its core ride-hailing slows down. Lyft posted its first results as a public company, one of the last data points for investors ahead of Uber's IPO this week.  Lyft, a smaller company, said growth was slowing and losses would shrink after this year. Uber, though, has bet on a broader range of services and markets than Lyft, comparing itself recently to Amazon.com Inc, which did not turn a profit until several years after its IPO.

"If you believe in the Amazon model, you basically believe that Wall Street will fund these companies indefinitely with almost zero cost of capital, as long as they post these extraordinary growth rates," said Renny Ponvert, CEO of independent research firm Management CV. "If that dynamic changes... things could get rough really quickly." Uber Eats, he said, was an example of a market that is similar to ride-hailing and can make for a relatively fast ramp-up of services and improvement in margins, he said, describing Lyft as playing catch-up.

Uber also has expanded into freight hauling, for instance. A person familiar with Uber's discussions with investors said the potential for Uber Eats, in particular, was resonating with investors. Uber's IPO is more than three times oversubscribed, the person familiar with the matter said. Uber is scheduled to price share in the IPO, expected to be the biggest of 2019, on Thursday, and then begin trading on the New York Stock Exchange on Friday.

Uber declined to comment. The company currently plans to sell 180 million shares in the offering to raise up to $9 billion. Uber is going public just over a month after Lyft, which priced very well in the IPO but has since struggled in trading. Uber and Lyft are racking up enormous losses, both reporting first-quarter net losses of around $1 billion. Lyft also raised some questions about Uber's focus on growth when Chief Financial Officer Brian Roberts said competitive pressure from promotional offers to riders "has recently receded". That could suggest Uber scaled back promotions, which could slow growth while making it easier to turn a profit, said Tom White senior research analyst D.A. Davidson. "If you prefer growth, then fewer incentives could have an impact on growth. But it certainly will impact profitability."

Uber, the world's largest ride-hailing company, is aiming for a valuation of between $80.5 billion and $91.5 billion in the IPO. This is as much as one-third below what the startup's insiders had hoped for last year, with Uber adopting a more cautious approach in the wake of Lyft's post-IPO struggles. "They're driving a little more carefully as they navigate their IPO process," said Daniel Ives, managing director of equities research at Wedbush Securities.

 

(With inputs from agencies.)