The initial public offering for Uber is coming, and a lot of people are worried it will be a dud.

The trends aren’t great. Bookings and revenue growth are slowing, while the company is losing domestic market share. The financials aren’t pretty. Uber still runs multi-billion-dollar losses every year, and those losses aren’t narrowing by much. Plus, Uber’s chief rival, Lyft (NASDAQ:LYFT), went public just a few weeks ago, and its IPO was a complete dud. As of this writing, LYFT stock trades 18% below its debut price.

Ostensibly, then, these indicators suggest that Uber IPO will be a dud, too.

But there are also signs that the Uber IPO could be a huge home run hit. Sure, sales growth is slowing, but user and bookings growth still remain robust. Just as importantly, the company is actually gaining market share internationally.

Also, while the company is still running massive losses, gross margins are trending higher and opex rates are falling with scale. Therefore, it may only be a matter of time before Uber hits profitability. Further, while the Lyft IPO badly disappointed, Uber has taken that flop into consideration. Now, the new IPO valuation is substantially lower than what many analysts expected.

As such, the Uber IPO should actually play out much differently than Lyft’s painful introduction. Uber has enough quality in its financials to forward a more convincing run.

Uber’s Negatives Are Overblown

Pretty much all the Uber IPO articles I’ve read are hyper-focused on the negatives from the company’s S-1 filing. Specifically, they focus on slowing growth and big losses.

Those observations are true. Top-line growth trends across the board are slowing. Specifically, growth in total users, total trips, gross bookings, and revenue are all in the midst of multi-quarter downtrends. Notably, Uber’s ride-sharing business — at 25% bookings growth last quarter — is growing much more slowly than Lyft’s counterpart unit. Also, Uber has reported an operating loss of greater than $3 billion in each of the past three years.

But these observations seem too elementary, and rather obvious.

All big growth companies suffer from both slowing sales and huge losses. The law of large numbers states that you can’t grow revenues at a 50% clip forever. Invariably, as the laps get tougher and the base gets bigger, growth rates will steadily decline.

Further, growth companies are supposed to invest heavily back into their businesses in order to expand market share, increase reach, and ultimately scale revenues. After they do all that, operating leverage kicks in, investments peel back, and the company becomes profitable.

As such, avoiding the Uber IPO due to temporary sales deceleration and early losses is short-sighted.

Positives from the S-1

Going through Uber’s S-1 filing, there many positives exist which bode well for the Uber IPO.

Long story short, this is a large growth company (39% core-revenue growth last quarter) with an improving margin profile: contribution margin went from flat in 2017 to 10% in 2018. In addition, the ride-sharing firm is immersed in an incredibly viable sharing-economy market.

Uber puts the total addressable market at $5.7 trillion, of which the organization is only tapping a very small portion. Of the 63 countries in which Uber operates, only 2% of the population used one of Uber’s offerings last quarter.

In other words, the services app has all the characteristics of a long-term winner.

As further evidence, bookings growth exited 2018 north of 35%, while trips growth was nearly 50%. Additionally, user growth was well over 30%. Further, in terms of global-rider market share, Uber actually expanded its presence in 2018 from 20% to 23%.

Meanwhile, losses are still huge due to sizable investments, but with bookings growth running north of 35% and the company gaining global market share, those investments are clearly paying off. Further, gross margins have actually expanded from approximately 40% to about 50% over the past three years. During that stretch, the opex rate dropped 30 points. Consequently, contribution margin has meaningfully expanded, and the company notably reported a contribution profit margin of 10% last year.

Ultimately, the concerns related to Uber seem way overblown, while the upside potential in a long-term window is enormous.

Long Term Fundamentals Imply Huge Upside

Uber has priced its IPO in the $44 to $50 per share range. At the top end of that range, the valuation for Uber would be around $90 billion on a fully-diluted basis.

Realistically, that’s not that high. Core revenue last year was $10 billion. Thus, Uber is being valued at nine-times trailing sales. For a hyper-growth tech stock with a market-leadership position in a secular growth market, that valuation isn’t all that expensive. Lyft went public at a $24 billion valuation on just over $2 billion in revenues last year, giving the stock a 12-times trailing-sales multiple.

Put another way, it appears that the valuation underlying the Uber IPO already considers Lyft’s struggles as a public firm.

In the long run, Uber could be worth a lot more than $90 billion. The sharing economy is growing by leaps and bounds. Uber is the heartbeat of this economy, providing market-leading sharing-economy services that range from ride-sharing to scooter-sharing to food delivery to logistics. The popularity and adoption of these services will grow enormously over the next decade. As they do, Uber will likewise increase in stature. Meanwhile, margins are moving in the right direction, and scale should ultimately produce healthy margins and robust profits.

Overall, I think secular growth tailwinds in the sharing economy, coupled with Uber maintaining its global market leadership position will turn it into a $100 billion-plus revenue company one day. I also believe that gross margins can run toward 60% in the long run. Better yet, opex rates can fall back toward 40% to 50%. Putting all that together, I think Uber can eventually produce $15 billion in net profits.

Based on a growth average 20-forward multiple, that equates to a long-term valuation target for Uber of $300 billion.

Bottom Line on the Uber IPO

Following the Lyft fiasco, many think the Uber IPO will follow suit. But that thesis lacks depth. The Uber IPO is different from Lyft’s debut in many ways. Ultimately, these divergences will produce different results. Indeed, instead of being a dud, Uber’s market unveiling could knock the ball out of the park.

As of this writing, Luke Lango was long LYFT.