In a world that is becoming ever more reliant on peer-to-peer services, the future of two of its most valuable companies hangs in the balance.
Two of the most anticipated IPO’s are for peer-to-peer driving services Uber and Lyft. Both have incredibly high user-bases and are at the forefront of developing driver-less technology. Both however, are also running in the red. Uber has even gone through a massive shuffle of their executive. In a recent article, Bloomberg writer Leila Abboud put forward the question
Will the new warm and fuzzy Uber [referring to new CEO Dara Khosrowshahi] be willing to revamp practices that actually affect the bottom line? Net revenue grew by double digits to reach $6.5 billion last year, but losses totaled a massive $2.8 billion, in part because of expanding operating costs and subsidies paid to drivers. Uber’s costs are simply not covered by the commissions they charge drivers.
The problem of bottom lines with these companies has been a recurrent one. Neither one turns a profit despite being evaluated highly. It remains to be seen if the strategy of building a base now for profits later will pay off.
This is one of the driving factors in opening the companies up to public investment. Business Insider reports that:
Lyft Inc is close to hiring an initial public offering (IPO) advisory firm, in the first concrete step by the second biggest U.S. ride service company to become publicly listed
In August, Uber’s new CEO Dara Khosrowshahi set a new tentative timeline for Uber’s IPO of between 18 and 36 months.
Both companies face their respective troubles in addition to running a deficit.
Lyft, who have had success raising capital through private equities, may have trouble getting investments from the big financial institutions:
Top investment banks face a dilemma with regards to whether they should be underwriters on Lyft’s IPO, since many of them, such as Goldman Sachs Group Inc and Morgan Stanley , are already lenders to its chief rival Uber. A bank that aligns itself with Lyft could potentially find itself shut out from a much larger IPO by Uber down the road. – Business Insider
Uber is facing problems with labour laws and regulations in Europe and Canada which also threaten the health of its IPO:
Uber is in front of an employment tribunal in London this week to appeal a decision that would make it give U.K. drivers more rights like overtime, holiday and sick pay. The judges decided last year that Uber drivers weren’t self-employed and deserved so-called “worker” status, an in-between category in Britain. In another U.K. legal case, Uber’s tax arrangements are being challenged, namely a structure by which it allegedly uses a Dutch entity to minimize value-added tax. – Bloomberg
While none of these issues write off these companies’ futures, they do have to sort these problems out before any serious attempt at an IPO is made. If you are thinking of getting involved when they do go public, be sure to be keeping up to date with any issues the companies could be having with expansion. If Uber’s troubles are an example of what investors can expect in the future, think long and hard before you buy.
To read Bloomberg’s article on Uber, click here.
To read Business Insider’s article on Lyft, click here.
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