Contrary to the conventional wisdom about the “Amazon effect”, companies that lose tons of money with no clear path to profitability actually haven’t fared all that well in the public markets.
Just look at Lyft, which sank below its last private valuation of $15 billion on Thursday, roughly $10 billion below its peak valuation on the day of its IPO. Snapchat is another notable example.
In fact, there appears to be a clear trend of cash-flow negative companies losing money for their investors after their IPOs. And if this trend holds for Uber, which is expected to price in the middle of its range (valuing the company at roughly $90 billion, per WSJ), a sign that demand for money-losing unicorns has started to wane, its post-debut performance could be the worst yet.
The biggest money-losing companies to IPO haven’t fared well in public markets
Uber will be #1 – biggest money-loser ever at the time of its IPO -when it debuts tomorrow. $LYFT is #2
— Deirdre Bosa (@dee_bosa) May 9, 2019
As we learned from Uber’s S-1, the company has burned through a staggering $12.1 billion over the past five years. It even warned investors that it might never achieve profitability, even as it struggles to establish itself as the ‘Amazon of transportation’, including food delivery and self-driving taxis.
Lowered expectations for Uber’s valuation appears to have already been reflected.
Looking back at the S-1, the company’s operating loss between Q1 2017 and Q4 2018 totaled $3.03 billion.
And here is the chart showing why now is the time to IPO (revenues and losses are both peaking).
And we imagine footage of Uber drivers protesting their low earnings by going on strike will definitely help endear investors to the stock.
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