Uber launches into nervy market

Uber hasn't used much'surge pricing' during its IPO

The company that popularised ‘surge pricing’ has been cautious about optimising its IPO price

To begin with, it has essentially discounted lofty valuations bandied about in the years leading up to its share sale. Talk was that the shares, which ‘priced’ in the institutional part of its IPO last night, would garner a market value as high as $120bn. That hype came as banks hoping for a hefty slice of the biggest Wall Street equity deal in years jockeyed for position. Since then, and one IPO road show later, price talk has decelerated ahead of the start of active trading on Friday.

As recently as April, bookrunners were mooting a range of $48-$55 per share, for a total Uber valuation of about $100bn, already a hefty reduction compared to earlier projections. Coinciding with the beginning of Uber’s roadshow and following the fate of rival Lyft, which trades over 20% below its launch price, a second Uber price range cut was telling. Neither underwriters nor Uber addressed the reduction to $44-$50 directly. But as a ‘strategic’ discount, it looked like a smart move. The IPO was reportedly three times oversubscribed by this week.

Yet persistent feedback points to the lower end of the latest range, telegraphing higher investor caution than Uber may have anticipated. That’s not quite square with briefings that pegged its opening price between the middle and the top of the $44-$50 band. If achieved, those prices would be resilient amid a market wrong-footed this week by U.S. President Donald Trump’s shock decision to raise tariffs on China again.

Despite inopportune timing, there’s been no signal from Uber that it has considered pulling the IPO. It also revealed the settlement of most lawsuits in a class action by 12,051 drivers claiming to have been misclassified as independent contractors. Filings show the cost will be $164m-$170m.

A nervy stock market, ambivalent investors, and reminders of well-flagged but unpredictable valuation, growth, regulatory and legal headwinds should all skim some froth off Friday’s launch. There’s no accounting for FOMO though, particularly at Uber’s first trading session. FOMO also applies to bigger participants like banks, funds and wealthy investors. The IPO pipeline shows signs of a post-Uber lull, according to data from Bloomberg charted below, despite decent indications of further big tech stock launches this year. FOMO-driven demand could yet drive Uber shares well above lowered expectations.

Source: Bloomberg/City Index

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