According to the news report by Bloomberg, Uber Technologies Inc.’s investors are preparing themselves for a rough second day of trading, in part due to the escalation in US President Donald Trump’s trade war with China on tariffs being imposed on imports.
Trading resumed for Uber’s shares on Monday 7.6% lower than the company’s offering price after a miserable debut on Friday. The company experienced the worst first-day dollar loss any US IPO has ever seen, and it was the most anticipated market debut in years.
The reasons for the ride-hailing company’s poor performance was a broader market sell-off and a weak quarterly earnings report by arch rival, Lyft Inc. According to the Chief Executive Officer of the Uber Dara Khosrowshahi, the company went public on a really tough day and a bad week.
However, some analysts feel that it was also the company’s business model that could have put prospective investors off, since it did not promise any profitability anytime soon.
Uber opened trading at $42, which was 6.7% less than its $45 IPO (initial public offering) price. However, after that the company’s stocks slid even further to $41.06. The ride-hailing startup was able to recoup some of its losses during the day’s trading, but closed the day in the red.
The co-founder Renaissance Capital who is also manager for the firm’s IPO ETF (exchange traded fund) Kathleen Smith, stated that while the trade war between the US and China definitely had a part to play in the stock market’s volatility, it was Lyft’s poor trading that really impacted Uber’s debut.
Smith stated that investors were applying Lyft’s valuation multiples to Uber’s stocks too. Thus, when Lyft’s stocks fell, Uber’s stocks followed.
For the last 3 trading days, Lyft saw its share price fall by 13.9% to the lowest they have been since the company launched its IPO. However, the Renaissance IPO ETF gained 0.5%, and in doing so, outpaced the S&P 500.
According to Smith, this means that the rest of the IPO market was healthy, and only Lyft and Uber were going through a difficult price discovery. She also stated that the two companies were likely to continue facing challenges in the coming days.
Before Uber had debuted, from a total of 60 companies that had launched their IPOs in the last one decade, only 4 of them which had a valuation of $1 billion or more had seen a drop of more than 5% in their share prices. And of those 60, only 7 IPOs closed their first trading day in the red.
However, not all are pessimistic about Uber’s stocks. According to Wedbush Securities’ Managing Director Dan Ives, this was just a near-term speed bump. It didn’t need to be viewed as a Lyft 2.0. He stated that Uber’s story continued to be a show me narrative.
New York Times gave further explored whether Day 2 of trading for Uber stocks would be better or worse. According to DealBook’s Stephen Grocer, the fact that the company’s stocks fell below its IPO price was a bad sign. He stated that if this happened, the offering was considered a failure, and was a signal that investors were concerned about that company’s future outlook.
Grocer stated that such IPOs could also have a larger impact on the IPO market by making investors wary about investing in other such big deals.
The up side to this is that while the prices of Uber are expected to fall further in the short term, they are expected to climb in the long term. An example of this is Facebook, whose share price took over a year to cross its IPO price.