Uber’s conservative initial public offering could not keep its shares from sinking in their trading debut, fueling debate on Wall Street over whether it would weigh on other tech giants.
Uber’s shares ended the day down 7.6 percent at $41.57, even as the S&P 500 reversed losses to end in positive territory.
The company considered going public for at least four years, but the week it picked for its IPO was plagued by market turbulence fueled by US-China trade worries. Smaller rival Lyft’s shares also plunged this week after posting its first earnings as a public company.
Uber was the biggest of a group of Silicon Valley startups that have spent years raising money in private rounds at record prices. Many of these companies are now looking to follow with their own IPO. Some, like Uber and Lyft, are unprofitable.
Uber Chief Executive Dara Khosrowshahi tried to calm investors by pointing to the company’s growth prospects and expansion plans.
“My reaction is if we build and build well, shareholders will be rewarded. We’re certainly not measuring our success over a day, it really is over the years,” he said.
The IPO was a watershed moment for the decade-old company, which was started after its founders struggled to find a cab on a snowy night.
Market experts have struggled to find value in a company that has consistently posted losses, and warned that it may never be profitable.
“The business is unprofitable, new entrants can enter the market, there is potential regulatory risk, and it is very price sensitive. What is there to like about this opportunity?” said professor of finance at Heider College of Business, Creighton University in Omaha, Robert Johnson.
Uber priced it IPO on Thursday at the low end of its targeted range, hoping that approach would spare it the trading plunge suffered by Lyft.
Lyft ended down 6.9 percent on Friday, and is 28 percent below its IPO price.
Still, the world’s largest ride-hailing company appeared to generate more interest from mum and dad investors than Lyft. Retail investors at TD Ameritrade executed more trades in the first ten minutes of Uber’s debut than in Lyft’s first two and a half hours.
Other IPOs have also traded well so far in 2019, including Pinterest Inc, vegan burger maker Beyond Meat Inc and video-conferencing startup Zoom Video Communications Inc, but these were much smaller startups than Uber that did not execute as many frothy fundraising rounds.
Only about a fifth of IPOs have ended their first day of trading in the red in the last two years, according to Dealogic data.
Workplace messaging company Slack plans to hold an investor presentation on Monday in advance of its direct listing next month. Grocery and food delivery platform Postmates, WeWork owner The We Company and online mattress retailer Casper Sleep are among startups seeking to launch IPOs this year.
“If a venture capital investor wants to burn cash they can do that as long as they want, but once you get to the public markets you have to show profitability or a path to it,” said Jordan Stuart, a portfolio manager at Federated Kaufmann who often purchases companies’ shares during an IPO.
Uber had already lowered its valuation expectations twice in the last two months to address investor concerns over its mounting losses.
While early-stage Uber investors such as Benchmark, Menlo Ventures, First Round Capital and Lowercase Capital made a killing in the IPO, some late-stage backers did not fare as well.
Japan’s SoftBank Group Corp, for example, invested in Uber in early 2018 at $48.77 per share. It also bought shares at a much lower price in a large secondary transaction.