Morning Markets: Uber’s S-1 is expected to drop today. Here’s what we’re looking for.
If reports are correct, today is the day when we should see Uber’s S-1 SEC filing, making this Thursday a key moment in the company’s history and a large step forward in its trek towards the public markets. The document’s release comes on PagerDuty’s first day of trading as a public company (more from our own Jason here), and following days of Lyft’s share price falling.
It’s the best of times, and the worst of times for the American ride-hailing market leader.
So, what to expect in Uber’s S-1 filing? What’s been on our minds as we’ve impatiently counted down? Here’s what to keep an eye on:
Uber grew quite a lot last year, about 43 percent according to figures that the firm released while private.
But what matters a bit more than that topline figure is what Uber got done in the last two quarters of the year. Mostly we want to know what sort of sequential quarterly growth the final two quarters of 2018 brought Uber, and the year-over-year percentage growth results for those two periods.
If the results are far lower than the same results recorded by Uber in the first two quarters of the year, its growth story will be more difficult to maintain. Expect Uber to highlight select growth metrics that paint it in a better light, but pay attention to the whole picture.
After all, Uber has managed to lose as much money as it has to-date because investors were more than happy to keep giving it capital due to its growth story. Given that Uber reportedly wants to sell $10 billion in primary and secondary shares in its IPO, its recent growth story better be enough to entice investors into paying the company to keep its current game going.
Revenue growth is only part of the value picture, however. What comes next in our line of questions is how Uber’s revenue itself performs.
A high-level, but critical Uber metric will be what percent of its gross bookings (sales of things on its platform) that it gets to keep (net revenue). The metric will probably trend up. You can know that from stories like this.
Stepping away from bookings into revenue, Uber’s resulting gross margin results will be interesting. It will be even more interesting to see if its gross margins are improving over time, and at what pace.
Uber’s starkly unprofitable business has a better shot at reaching profitability if its gross margins are improving as its revenue grows; the combination builds gross profit (the stuff you can use to pay for your operating costs) far more quickly than merely improving one of those metrics.
Summing, if Uber can show that it’s keeping a rising percentage of its platform spend and show that it is driving lower costs of revenue as a percent thereof (more simply, that it is improving its gross margins), it can perhaps sketch out a future in which it makes money. Investors will want that, as it means that at some point in the future Uber will stop diluting their stake by selling more shares or hocking expected future cash flows by taking on debt.
But whatever path to profitability Uber manages to draw, the length of that trail will depend on how far it has to rise out from its current losses.
Uber is a famously unprofitable company, making even Lyft’s stiff 2019 deficit of over $900 million appear pedestrian. That scale of loss adds a lot of weight to the above figures; Uber needs to make a growth case (that it is still a growth-oriented company), and a path-to-profitability argument (that it has a reasonable path to at least cash flow breakeven) at the same time to reach the valuation it has in mind.
So the net loss results that it posts will show the difficulty of its challenge to take control of its own destiny by weaning itself off external capital.
Of course, we’ll do most of the work for you when the document drops. Stay tuned!
Illustration Credit: Li-Anne Dias