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Last week, Uber kind of, sort of announced it was going to go public in early 2019 at a valuation of about $120 billion.
It wasn't Uber directly saying that. It was a Wall Street Journal story that more than likely came from sources at the company.
We can assume the news really came from Uber because the $120 billion valuation number was based on talks Uber had with potential lead underwriters The Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS). And they wouldn't have leaked that to the Journal. That number would have had to come from Uber itself.
And WOW, what a number. Uber's worth $120 billion?
The questions you should be asking are:
- Why is Uber kind of, sort of pushing for an early 2019 IPO right now?
- Why has it taken the nine-year-old company this long to go public?
- How does the company figure it's worth $120 billion?
- And, should you invest in it?
And I can tell you that the answers to all these questions will kind of, sort of shock you, but there's a potentially lucrative opportunity that could make relying on stocks obsolete…
Growth Begets Greed
One reason Uber wants to push its IPO in early 2019 is that its U.S. competitor, Lyft, announced a day before the Uber news hit that it was doing an IPO in early 2019.
Uber CEO Dara Khosrowshahi, who was just brought in this summer, rolled into the C-suite talking about preparing the company for an IPO in 2019. So everyone knew it was finally going to happen – but the anticipation was for late 2019, not early 2019.
The reason Khosrowshahi teased the prospect of an IPO is because investors in Uber were getting anxious about the company's management, its future, and their investment. In other words, a lot of those investors wanted to cash out.
Besides early investors, later-to-the-game investors like Fidelity and Softbank Group Corp. (OTC: SFTBF)'s Vision Fund, are itching to book some real profits on their bet, or at least have some liquidity and an avenue to exit.
Softbank has a 15% stake in the company, a position it acquired in late-round financing and from other investors paring down their stakes – yes, cashing in some of their chips.
Softbank's deal, putting up money in a late financing round (meaning it paid more than early investors did for its stake), came with a perk. The perk Softbank wrangled from Uber is if there isn't an IPO in 2019, investors with at least $100 million in the company, or who've had money in for more than five years, can sell their shares in the private secondary market.
That's a very dangerous position to put Uber in. If Uber shares in the secondary market aren't bid up, but rather sell at lower and lower prices, the valuation of the company starts heading down, and that would really depress the prospects for a successful IPO.
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That motivated the meandering unicorn to announce it would IPO in 2019.
It's now happening in early 2019 because Uber doesn't want to come up lame in the IPO sweepstakes race with Lyft. If Lyft's IPO is before Uber's and it bombs, Uber's valuation will tumble before it debuts, making its post-IPO trading a crapshoot.
Why did it take Uber so long to go public?
Growth begets greed, which is good sometimes.
As Uber grew its brand, its reach, revenues, and valuation grew.
The company's revenue for 2018 is expected to be between $10 to $11 billion. On the high end, that's $3.22 billion, or 41% more than Uber's 2017 revenue.
Late-stage investors have to pay up for their stakes in a growing company. And Uber's no exception.
There's a trick to paying up for your late-stage investment in a company like Uber.
The more new investors have to pay, the higher they make the valuation. But the trick isn't foolproof.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.