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How the promise of a $120 billion Uber IPO evaporated

Mike Isaac, Michael J. de la Merced & Andrew Ross / 16 May 19 | 10:10 PM

Last September, Uber’s top executives were pitched by some of Wall Street’s biggest banks, Morgan Stanley and Goldman Sachs.

The bankers’ presentations calculated Uber’s valuation almost identically, hovering around one particular number: $120 billion.

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That was the figure the bankers said they could convince investors Uber was worth when it listed its shares on the stock market, according to three people with knowledge of the talks. Uber’s chief executive, Dara Khosrowshahi, and chief financial officer, Nelson Chai, listened and discussed the presentations, these people said. Then they hired Morgan Stanley and Goldman Sachs to take the company public — and to effectively make the $120 billion valuation a reality.

Nine months later, Uber is worth about half that figure. The ride-hailing firm went public last week at $45 a share and has since dropped to around $41, pegging Uber’s market capitalisation at $69 billion — and officially crowning it as the stock market debut that lost more in dollar terms than any other American initial public offering since 1975.

How Uber’s offering turned into what some are now openly calling a “train wreck" began with the $120 billion number that the bankers floated. The figure leaked last year, whipping up a frenzy over how Uber could soon become the biggest American company to list on an American stock exchange — larger even than Facebook, which went public in 2012 at a whopping $104 billion valuation.

The result has created a host of pointed questions for all involved in Uber’s IPO, from Mr. Khosrowshahi and Mr. Chai to the lead underwriters at Morgan Stanley, Goldman Sachs and Bank of America. While Uber raised $8.1 billion from its offering and reaped billions of dollars in returns for its early investors and founders, what should have been a climactic moment for a transportation colossus instead became an embarrassment.

The extent of the fallout may not be clear for a while, and it is too early to judge how Uber will ultimately fare in the public markets. But as many other tech-related companies aim to go public this year, including the food-delivery company Postmates and the real-estate firm WeWork, they will have to contend with whether Uber has squelched what had been a red-hot IPO market.

“The $69 billion market cap Uber had when the market closed today is a new reality," said Shawn Carolan, partner at Menlo Ventures, which invested early in the company. But he added that Uber’s executives now had “the opportunity to show us what they can do."

This account of Uber’s IPO was based on interviews with a dozen people involved in or briefed on the process. Many asked to remain anonymous because they were not authorized to speak publicly. Representatives from Uber, Morgan Stanley and Goldman Sachs declined to comment.

For years, Uber was an investor darling. As a privately held company, it gorged on capital from venture capital firms like Benchmark and GV, mutual fund firms like Fidelity Investments, and companies like SoftBank. Its private valuation shot up from $60 million in 2011 to $76 billion by August.

Some investors were also resisting because they had earlier invested in Uber at cheaper prices. Since its founding in 2009, Uber has taken in more than $10 billion from mutual fund firms, private equity investors and others, meaning that its stock was already widely held among those institutions that traditionally buy shares in an I.P.O. So the I.P.O. essentially became an exercise in getting existing investors to purchase more shares — a tough sell, especially at a higher price.

The slowing growth led to lukewarm investor demand for Uber’s shares, according to two of the people involved in the matter. Some investors argued that Uber needed to price its offering lower, these people said.

In March, another problem cropped up. Uber’s rival in North America, Lyft, went public and promptly fell below its offering price on its second day of trading. Investors appeared skeptical about whether Lyft could make money, setting a troublesome precedent for Uber.

By the time Uber made its IPO prospectus available in April, it had already told some existing investors that its offering could value it at up to $100 billion — down from the initial $120 billion.

© 2019 The New York Times

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