Uber: Is an Uber IPO Back on Schedule?

Uber IPOUber Stock IPO Grows Less Likely

Although the market is eagerly awaiting an initial public offering (IPO) for Uber stock, we need to start accepting a stark reality. It doesn’t look like we’ll see an Uber stock IPO any time in the near future. Despite continuous expansion, Uber seems to draw in enough funding through private placements, thus reducing their desire to launch an IPO.

Just a few months ago an Uber IPO seemed all but guaranteed. Like other “unicorns” from Silicon Valley, Uber looked like it was playing the expectations game with markets.

When a firm is growing quickly and looks primed for an IPO (like Uber), it can deliberately hold off in order to build the hype around its offering. That way the optimism swells to a crescendo, and we see a price surge on the first day of trading (I’m looking at you, Facebook Inc.).

As Uber continued to raise money through the start of 2015, it looked as if they were using this strategy to pump markets ahead of the Uber stock IPO. As much as I hate to admit it, it looks like we were wrong. I no longer expect to see an Uber IPO in 2016.

What Happened to the Uber IPO?

One of the great frontiers for Uber was its incursion into China. Over 50% of all Uber trips now come from China, which is stunning considering how recently Uber entered that market. Also, they aren’t even the biggest player in that market.

Uber has come up against a formidable foe in China named Didi Kuaidi, a hybrid of China’s two largest taxi firms-well, one was a taxi company and the other was a rideshare firm. Knowing that Uber would seek a portion of the Chinese market, the companies announced a merger on Valentine’s Day 2015. (Source: “Meet Uber’s Mortal Enemy: How Didi Kuaidi Defends China’s Home Turf,” Forbes, September 23, 2015.)

The behemoth born from China’s biggest merger ever was Didi Kuaidi. It is backed by internet giants Alibaba Group Holding Limited and Tencent Holdings Limited, giving them deep enough pockets for a fair fight with Uber.

At first I thought an Uber IPO was guaranteed because of the fight with Didi Kuaidi. In order to fund that conflict, it seemed likely that Uber would need the support of capital markets. But that was just plain wrong.

Tencent and Alibaba are two of the three Internet giants in China, so Uber sought out their chief rival, Baidu Inc. Having the search engine company as an ally significantly boosted the profile and operational success of Uber in China.

Also, Baidu pumped around $2.2 billion into Uber China, the local subsidiary of Uber. In total, Uber China has an $8.0 billion war chest to use for expansion. (Source: “Uber Has Raised $1.2B More In China With Baidu Investing As Rival Didi Kuaidi Gets $3B”, TechCrunch, September 7, 2015.)

Uber Stock IPO Would Hinder Research

As an investor, I’m disappointed at the lack of an Uber IPO. Getting my hands on Uber stock would be amazing since I’m incredibly bullish on ridesharing as an industry. But from a strategic point of view, staying as a private company makes perfect sense for Uber.

The regulatory environment around Uber is still evolving. Municipal governments around the world are facing pressure from their taxi lobbies to ban Uber, or somehow regulate away their competitive advantage. If Uber was a public company, every little hiccup would send Uber stock into a tailspin.

Moreover, Uber is experimenting with driverless technology and its implications for the future of transportation. That kind of investment usually requires a longer time horizon than stockholders are comfortable with. Rather than three months, Uber’s driverless tech could take three years to figure out.

At least by staying private, Uber has the freedom to do what they please.

Stay in the loop. Follow Gaurav on Facebook and Twitter.