Uber stock was the most anticipated IPO of 2019, but it failed to live up to expectations. Six months ago, Uber was hoping to raise close to $20 billion from their IPO. However, the actual amount fell far short, as Uber only raised $8.1 billion. Making matters worse, Uber stock has not performed well in the stock market. In fact, Uber owns the embarrassing title of being the worst-performing US IPO since 1975.
Uber stock could remain shaky
We’re not here to pity Uber. They are the dominant leader in the ride-sharing market and are gaining share in freight and food delivery. Looking out 5-10 years, it’s hard to see a world without ride-sharing and without Uber. However, that doesn’t necessarily mean that Uber will be a good long-term investment. For evidence, consider that Uber is valued lower today than it was 3 months ago, even though its operations are bigger than ever before.
In September 2018, Uber was hoping to be valued as a $100-$120 billion company. Today, its valuation is less than $75 billion. Some of the biggest losers in the Uber IPO are the employees of the company. Employees usually receive employee stock options or other stock-based compensation. These types of compensation plans can help employees of publicly traded companies grow their wealth. However, because Uber’s stock has not done as well as expected, the employees of the company are going to make less than they may have originally anticipated.
Two main risks
Anyone who has investment exposure to Uber needs to consider how the stock’s poor performance may impact them moving forward. We see two major risks for the stock over the next 6 months:
- Because Uber’s stock hasn’t done well following the IPO, it is more likely to struggle moving forward. According to Barrons, companies that do not have successful IPO’s tend to experience poor performance in their first 2 years as a public company.
- Uber executives, employees, and large shareholders will be able to sell their stock beginning in November 2019 after the IPO Lockup Expiration. This will add new supply to Uber stock and can impact the share price in a negative way.
$45 is the key level to watch
In regards to our first point, the key number to watch is $45. That is the price at which Uber IPO’d. While below $45, anyone who invested in Uber’s IPO has lost money. There is usually a negative overhang on a stock that goes below its IPO price right away. Imagine you bought a home for $300,000, and then one month later a similar house next door sells for $270,000. That sale is likely to hurt the value of your home.
When and if Uber’s share price can rise above $45, IPO investors will feel much better about their investment in Uber. In addition, other potential investors will have more confidence that Uber is rising in value and be more likely to invest. Simply put, until Uber’s stock price can move above $45, it has a higher risk than usual.
Uber’s lockup expiration is in November 2019
There are new Uber shares coming to the market in November 2019. These new shares might impact the share price in a negative way. This is referred to as Lockup Expiration, or when executives, employees, and major shareholders can sell their Uber stock for the first time. Typically, a company’s share price will start to decline 3 months before an IPO lockup expiration.
Uber has a dominant position in the ride-sharing market, but that hasn’t yet translated to a strong stock market performance. Before investing, potential investors may be better off waiting for the share price to stabilize above $45 or for the lockup expiration date to pass. Make sure you have a plan in place if you own employee stock options or other forms of stock-based compensation in Uber. You’ll want to avoid these 3 mistakes when your exercise window opens in November. Don’t hesitate to contact us if you need assistance in managing your employee stock options.
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