Uber Technologies Inc (NYSE: UBER) has made its New York Stock Exchange debut at an initial
public offering price of $45 on Friday.
But as you can see in this chart, it didn’t do so well.
It fell by 7.62% to $41.57.
By some estimates, this is one of the worst performing IPOs in the last few decades.
Jay R. Ritter, a professor at the University of Florida who is known as “Mr. IPO”,
noted that,
“On a dollar basis, investors who purchased the 180 million shares offered through the
IPO at $45 per share collectively logged $618 million in paper losses on Friday.”
This is the worst dollar loss for a US IPO since 1975, excluding foreign companies listed
via American Depositary Shares.
According to data provided by UK company Dealogic, Uber’s IPO ranks as the ninth worst first
day performer of all time in terms of the share price drop.
But this might not be so bad for many investors.
Those who bought into the initial public offering at $45 are under the condition of a lock-up
period of six months.
That is, they cannot sell their initial stock until November 2019.
So the losses for these investors are completely theoretical.
However, this doesn’t stop new investors from selling short and watching the price
plummet in the process.
So what are the reasons for Uber’s price fall?
Well, some are arguing that Uber’s troubles had little to do with Uber themselves and
more to do with the state of the stock market.
Due to recent tensions between China and the US around trade tariffs and the like, many
stocks have been falling.
However, looking at the Friday results for the S&P500, we can see that it rose by 0.37%.
So, maybe it is Uber.
But ultimately, one day is too soon to tell.
Uber’s value will be determined by things like whether it can keep growing in market
share in its ride-sharing business, or in its other business ventures involving food
delivery, and freight.
There’s also the big question plaguing every investor’s mind — Will Uber ever become
profitable?
You see, Uber is not currently a profitable business.
In 2018, it made a loss of about $1.8 billion, and in 2017, it had a reported loss of about
$2.2 billion.
What a world we live in where the most famous ride-sharing business is not even profitable!
Uber’s chief executive, Dara Khosrowshahi, was on the trading floor to mark the stock’s
debut.
He tried to calm investors by speaking of the company's growth prospects and expansion
plans.
He said,
“My reaction [to the share price] 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.”
Uber’s main ride-sharing competitor (in the US market at least), Lyft, hasn’t been
doing so well either since pricing its initial public offering at $72 a share.
It closed at $51.09 on Friday for a total loss of about 29% if you bought at the IPO
price.
Not good at all.
Back to Uber, there’s also news coming out saying that drivers are not happy with the
pay and conditions that Uber offer.
Drivers staged a global protest last week, massing outside the company's Melbourne headquarters
here in Australia.
Uber driver Deb, who has worked for Uber for the last two years, is not legally classified
as an employee, but instead as an independent contractor.
She says she maintains her own vehicle, pays for her own petrol, pays for registration
and insurance, as well as other costs.
She said,
“Uber started here with the myth of being a tech innovator.
Globally there's 3 million cars on the road.
Globally that represents a conservatively valued investment of $50 billion [by drivers].
Driver investment is a huge part of Uber's operating capital.
Uber couldn't afford to buy our cars, they couldn't afford to run our cars.”
Driver Andrew, who wished to remain anonymous, talked about the long working hours and poor
pay working as an Uber driver.
He said that he works for 60 to 70 hours a week, but after four years with the company,
finds himself earning about $700 a week, less than the minimum Australian wage of $719.20
a week.
He said,
“It's a struggle.
It's getting worse, it's getting harder to make a dollar.”
Of course, Uber have defended themselves and said that they are helping out the unemployed.
“10 suburbs in Melbourne with the highest number of resident Uber drivers were suburbs
with a mean unemployment rate of approximately 9%, above the national average of 5%.
We do not believe the solution can be found in restricting how people choose to work,
or pushing them into traditional modes or definitions of work.”
In other words, Uber want people to work for them, but not to be classified as legal employees
who receive costly insurance, superannuation, or sick leave.
Uber’s business model is inherently exploitative.
It’s funny how they still can’t turn a profit.
The Victorian Government have launched an inquiry into the workforce of on-demand employees.
Former Fair Work commissioner, Natalie James who heads the inquiry, spoke of the vulnerability
of these workers and how the relationship between them and the platforms was not transparent.
She said,
“People often feel they don't understand how the platforms work.
They feel sometimes that there is unilateral and unexplained conduct.
One worker who made a submission to the inquiry talked about wanting to raise some issues
with their platform and said, 'It was like dealing with a ghost'.”
An employee by the name of Samantha who has worked on multiple on-demand platforms, has
not many good things to say about them.
She said,
“I am somewhat hostile to this new form of work because it clearly and unfairly advantages
one side [business] over the other [the people who perform the labour] in new and perverse
ways.
I made a complaint about being paid monthly and ended up with my shifts being cancelled.
The job was re-advertised on the same platform shortly after.
Basically, I was punished for asserting my rights.”
Robin, another Uber driver who attended the Melbourne protests, said that he drives 12
hours every day in split shifts for fairly meagre pay.
He spoke of the lack of ability to access any grievance processes.
He said,
“We are powerless really.
When we make a complaint we get an automated response — it's not a human, it's a machine.
The moment a rider gives a complaint, that's it — we are deactivated with no further
notice.
The next morning when we go out to work?
We are deactivated.
This protest?
Let it be the beginning of everything!”
And that’s the state of Uber in a nutshell.
It’s stock price fell by 7.62% on its opening day.
It’s business model requires workers to forgo their rights.
It’s not profitable and is making year-on-year losses.
Where will this industry ultimately end up?
My guess — an automated fleet of cars that require no drivers, and therefore no complaints
and no additional costs.
Exactly what big business want.