No Uber IPO in 2016
An initial public offering (IPO) for Uber Technologies Inc., the world’s most popular ride service platform, would be an outstanding event in any year in the financial markets. Often, pundits have spurred rumors of an imminent Uber IPO, setting the greed of investors afire. Alas, Uber IPO is one “car” that will keep the name “desire” for now. It seems that Uber’s walk on the Wall Street plank will have to wait at least another year.
Travis Kalanick, Uber’s executive director, will keep Uber private. Indeed, Kalanick said he would delay the IPO as long as possible. (Source: “Uber IPO uber-unlikely: CEO Kalanick,” CNBC, March 29, 2016.) Instead, Kalanick has raised around $10.0 billion over the last 18 months, which will keep the company funded for a while.
Kalanick also said that thanks to this fundraising, he did not need public capital markets. Uber can do better through the flexibility offered by private funding. Therefore, the company can continue to grow, while maintaining the independence and flexibility that a public listing would restrict.
Such is the investment interest in Uber that investors describe it as a “unicorn.” It happens to be a $62.5-billion unicorn. (Source: “Uber Raises Funding at $62.5 Billion Valuation,” Bloomberg, December 3, 2016.) The fact that the company has no shortage of private funds really means that even a five- to six-year IPO timeline is more doubtful than probable.
It comes as no surprise that Uber is the most valuable startup in the world. Uber, which now operates in more than 250 cities worldwide, has overcome obstacles and criticisms, generating an impressive growth rate with no signs of slowing down. In confronting, the mighty taxi “cartels” in so many world capitals and major cities, Uber has put its appeal and business model to the test, winning on both counts.
The Vehicle for Hire (VFH) service keeps a 20% commission on all fares, whether the drivers are professional or amateur, operating their own vehicles or taxis (in some cities).
Uber is re-investing heavily in itself to expand beyond the 50 countries where it currently operates. More importantly for the long-term, it is also investing to replace drivers with robots.
Even as Tesla is readying to offer a driverless car, Uber has also established its own research and development (R&D) center, recruiting some of the best engineers in the world to develop completely autonomous vehicles that can pick up a customer and deliver them to any destination. Doing so would cut commissions repaid to human drivers.
The robotized cars will also decrease Uber’s risk profile, because it is unlikely that the driverless cars will have a criminal record that could jeopardize the company’s reputation—as has been the case in the United States, where Uber is accused of having signed on former killers, rapists, or burglars as drivers. (Apparently the Uber driver screening process isn’t as rigid as it could be.) Uber’s ability to improve its image, conditioned by lawsuits and restrictions, must be achieved before it can launch an IPO.
Uber’s current drivers can still rest assured their gig is safe for the time being, as the company’s quest for an autonomous car is only at an early stage. However, if Uber is betting on self-driven cars replacing the hundreds of thousands of drivers it currently hires, investors can bet that the company is poised to become much bigger than even Amazon.com.
But don’t expect an Uber IPO anytime soon.