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Will Uber Be the Hottest IPO of 2017?

By now, I think we all know what Uber is, what it does, and how it makes our lives easier. Have too many groceries? Get an Uber. Too drunk? Get an Uber. Stressful day at work? Uber. Like magic—now, it’s really an expectation—any transportation woes vanish with the digital sight of a car heading your way.

Launched only seven years ago, Uber Technologies Inc. is an app-based transportation company headquartered in San Francisco, California. It operates in about 270 cities and more than 60 countries worldwide, and as of this June, Uber completed 5 billion total trips. Using the app is easy: just type in your current location, where you want to go, and hit request Uber. From there, Uber uses its app to receive its ride requests, sending them out to drivers who transport customers to their final destination.

Increased Competition

The emergence of on-demand rides has become a popular business venture all over the world, but it has proved difficult for companies to break away from the congested pack. At the end of 2015, Sidecar, another on-demand car service, officially stopped offering rides and deliveries.

Companies like Lyft, Curb, Southeast Asia-based Grab, India’s Ola, and especially China’s Didi Chuxing have all started to eat into the ride-hailing market share, becoming huge competitors for Uber. Didi was arguably Uber’s biggest threat overseas, and the ride-sharing giant conceded defeat last August, selling its UberChina operations to Didi and ending an expensive, bruising battle between the two companies.

Even Alphabet Inc. GOOGL is becoming a threat to Uber, with plans to make its self-driving cars unit a stand-alone business. This initiative could put the company in direct competition with Uber, as the lack of a driver could keep costs down in the long-term. The company’s Google division also recently began a pilot program with Waze, a company they acquired in 2013, that enables thousands of San Francisco commuters to join carpools; Waze also offers real-time driving directions based on information from other drivers.

Self-Driving, Uber Style

But Uber is right on Google’s heels, and as self-driving car technology becomes more commercially available, Uber has been constantly beefing up its business strategies focused on autonomous driving. Back in September, it began testing its self-driving Ford F Fusions in Pittsburgh; engineers rode in the driver’s seat, ready to take over whenever things got tricky.

Uber then introduced self-driving Volvo XC90s to San Francisco in December, and riders who requested an uberX were matched with one of these vehicles if one was available. Just days later, however, the California Department of Motor Vehicles revoked the registrations for its self-driving cars, as the company didn’t have the proper permits.

But Uber being Uber, the fleet of Volvos were on their way to Arizona within days. Uber already operates a self-driving car program in the state, and back in 2015, partnered with the University of Arizona to research mapping technology.

Uber also recently acquired car start-up Otto, which specializes in self-driving trucks. Otto is a 90-person company, and its co-founder, Anthony Levandowski, will now lead Uber into the self-driving car market. Impressively, Otto engineers have worked at Tesla Motors TSLA, Apple AAPL, and Google, and with this knowledge and expertise, Uber is bound to be a top player in the self-driving car industry.

Controversy

While Uber has seen great success, its journey has been a bumpy one. The company has been in and out of the news thanks to a number of recent legal (Alphabet is currently suing them for theft of its self-driving car technology), publicity (note the company’s sexual harassment scandal and resignation of CEO Travis Kalanick), and many other headlines in a number of countries. From noncompliance issues in New York City to regulatory concerns and lack of driver background checks, Uber has drawn scrutiny and criticism, and has even been banned in The Netherlands and in parts of Thailand, India, and China.

It's no secret that traditional taxi services are not happy with the rise of Uber and other ride-hailing companies, and many argue that Uber should be subject to the same regulations that they face. In dozens of cities it has moved in to, Uber has faced intense opposition, lobbying, and legal challenges against it from these taxi companies.

Uber has also been embroiled in a long-standing battle with its drivers. A group of drivers first sued the company back in 2013, claiming they should be classified as employees rather than independent contractors. As a result, Uber had been set to pay up to $100 million in reimbursement damages to almost 400,000 drivers, but recently, a federal judge in California ruled that the settlement was unfair.

While the saying goes “any publicity is good publicity,” Uber’s misfortunes may have finally caught up to them. It’s safe to say that the company invokes strong feelings and opinions, many of which aren’t too positive. Uber is still losing a ton of money, too. The company lost over $1 billion in the first half of 2016, with losses totaling $2.8 billion last year. And in the first three months of this year, it lost $708 million.

However, Uber gained as much revenue as it lost during the first half of last year, and total revenues for 2016 came in at $6.5 billion. Gross bookings hit $20 billion, more than doubling from the year prior. Despite constant negative press, Uber’s ability to grow sales and raise exorbitant amounts of cash is incredibly impressive for a company who is less than a decade old, and this skill makes Uber that much more attractive to venture capital investors. 

IPO Potential

Without a doubt, investors are eagerly awaiting an Uber IPO. Many have believed, or hoped, the company would go public for a few years now, but former chief executive Mr. Kalanick wanted “to make sure [an IPO] happens as late as possible,” said in an interview with CNBC last year. And, it's hard to say how his departure will affect the company's IPO prospects.

If and when Uber finally decides to go public, its potential would depend on the broader IPO market and economic environment. According to Renaissance Capital, IPOs only raised a paltry $18.9 billion in 2016, with annual proceeds falling to the lowest level since 2003. Just four companies filed public offerings that grossed over $1 billion.

Looking ahead, it’s difficult to pinpoint how busy the IPO market will be this year. Snap Inc. SNAP, the parent company of Snapchat, finally made that giant step in March, and meal-kit delivery company Blue Apron APRN just went public at the end of June to an underwhelming start. It’s hard to say what, and if any, other high-profile unicorns—i.e. Spotify, Pinterest, Airbnb, and yes, Uber—will follow. And recent high-growth IPOs like Twilio Inc. TWLO and Nutanix NTNX have traded strongly since their debut, a good sign for tech companies everywhere looking to IPO.

An IPO for Uber could be massive for both the company and Wall Street. It’s currently valued at arounf billion after a total of 16 rounds of funding worth $11.56 billion since its launch. And thanks to Uber’s structure—a unique combination of transportation company, mobile Internet company, and real world engineering—the company has been touted as one of the best future IPOs.

Its IPO, then, could go either way, but let one number stay in your mind: billion. Let me write that again: billion. This number is a hard one to forget, and a figure that will be on the forefront of many investors’ minds come the time of its public offering, as it impressively showcases just how far this startup has come in a few short years.

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Alphabet Inc. (GOOGL): Free Stock Analysis Report
 
Twilio Inc. (TWLO): Free Stock Analysis Report
 
Snap Inc. (SNAP): Free Stock Analysis Report
 
Nutanix Inc. (NTNX): Free Stock Analysis Report
 
Ford Motor Company (F): Free Stock Analysis Report
 
Tesla Inc. (TSLA): Free Stock Analysis Report
 
Apple Inc. (AAPL): Free Stock Analysis Report
 
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