If you’ve been patiently anticipating Uber to go public, stop. It’s not coming this year, and it may not even hit the markets in 2017.
In fact, just last month Uber CEO Travis Kalanick revealed in a CNBC interview that he’s trying to push Uber’s initial public offering back as far as possible, although he didn’t explicitly say why.
Well, allow me to offer up a theory: I think Uber’s delaying the inevitable IPO because it knows its private market valuation is insane — and ultimately won’t fly for very long on Wall Street.
The latest fundraising round valued the ride-hailing company at more than $68 billion, making Uber more valuable than General Motors Company (GM), Ford Motor Company (F) and Honda Motor Co Ltd (ADR) (HMC). That’s very, very dumb.
The Uber IPO Should’ve Happened Already
Uber should’ve already gone public. Now in the eighth year of a bull market, global growth concerns have begun to weigh on U.S. markets and reign in investor confidence. The first quarter of 2016 was the driest it’s been in years for IPOs, and bubbly valuations can only last so long.
Kalanick admitted that an eventual Uber IPO is a “moral obligation” for stakeholders — basically early investors and company employees — who want liquidity.
Uber has a commanding lead in its industry in many markets across the globe right now, but if it waits one or two or three or five years, it’s giving competitors time to catch up.
In fact, we’re seeing that already. GM made a $500 million investment in Lyft, then partnered with the Uber competitor on an exclusive agreement to lease GM vehicles to Lyft drivers at reduced weekly rates. Now you don’t even have to be a car owner to be a Lyft driver.
Uber, which is said to be working on an autonomous car, will likely face competition from Tesla Motors Inc (TSLA) in a few short years. Tesla CEO Elon Musk has hinted that after the mass-produced, affordable Tesla Model 3 hits the roads (supposedly in late 2017), Tesla may operate its own driverless fleet of self-driving cars.
Why Uber’s IPO Won’t Be Worth It
I understand why some people might think buying Uber stock would be a good investment. A recent report in the LA Times said that between 2012 and 2015, the number of taxi rides fell 30% across the city of L.A., largely due to the rise of Uber and Lyft.
Because taxi fares are set by regulators, and because taxi drivers are generally compensated better than Uber drivers on a per-ride basis, the taxi industry has been absolutely demolished by Uber and Lyft in recent years, which can set their own prices at will, as well as offer coupons or referral bonuses.
If Uber is destroying an entire industry (and taking taxi drivers’ jobs with it, by the way), you might imagine it’d be a nice company to own stock in.
But no, it won’t be. I imagine the Uber IPO will make the infamously flubbed Facebook Inc (FB) IPO in 2012 look like a glorious success.
That’s because the public markets will not respect the criminally insane valuations of the frothy private markets. In fact, you can simply look at Wall Street and see that there is literally no precedent for Uber’s current (delusional?) valuation.
At a market cap of $68 billion, Uber trades at between 39 and 45 times sales. That’s according to estimates Business Insider published that put Uber’s revenue between $1.5 billion and $2 billion in 2015.
Trading at 40 or 45 times sales is unheard of on Wall Street. Of the large-cap companies worth $10 billion or more, there are only five trading at a P/S ratio above 20, and only one trading above 30.
Who does Uber think it is? This is the peak. Enjoy it while it lasts, fellas. Because the three-to-six-month lockup period after the Uber IPO will be very painful to watch … for you.
Like Dr. Dre’s Detox, an album the rapper kept hyping but never released, the Uber IPO has kept some investors waiting impatiently. As with Detox, that wait will be in vain.
As of this writing, John Divine held no interest in any of the stocks mentioned, but may end up buying some Uber puts once they hit the market. You can follow him on Twitter at@divinebizkid or email him at email@example.com.