Uber vs Lyft: Which Will Go Public First?

The benefit of IPOs is to get access to public capital market.  The cost is that private owners have to share their “entrepreneur” returns with the public.  Even long before its IPO, the pseudo-public company will be intensely securitized by the potential public shareholders.   Just ask Uber’s Travis Kalanick what he feels about now.  Most anticipate that Uber’s highly anticipated IPO won’t happen soon because of recent negative publicity.  That being said, there is no such thing as bad publicity.   Uber continued to gain large revenue and not yet had any problem to raise exorbitant amounts of private capital.

This is why Kalanick wants “to make sure an IPO happens as late as possible.”

However, going public decision, albeit unwillingly, is always a rational one.  Owners pick the optimal timing of IPOs to maximize their share values.  So, the real question to Uber’s IPO valuation is when Uber will ever turn profitable.   In the first half of 2016, Uber had over $1 billion loss.  This makes Uber’s most recent $70 billion private market valuation a lot like Amazon who took more than 15 years to turn profitable.  Loyal public shareholders believe that CEO Jeff Bezos, running Amazon at a long-term loss, would eventually pass great deals to customers (users) to stockholders.  And he did.

Similarly, future Uber‘s stockholders believe that Travis Kalanick will pass great deals to consumers (riders) to stockholders.  Given all the road blocks which may significantly delay the realization of future revenue and profitability, your call of a soon-to-come IPO is as good as next guy.

In contrast, Lyft seems to be the direct benefactor of this zero-sum gain.  Uber’s loss on public opinion from early 2017’s “#ExitUber” campaign to recent scandals is Lyft’s gain.  Most recently valued at $7.5 billion from a $600 million round of financing, Lyft has impressive blue chip backers, including KKR, Baillie, Alliance Bernstein, General Motors, Rakuten, and Janus Capital Group who are well known to provide funding just ahead of an IPO.   It is highly speculated that Lyft, with much better financials, will enter the public capital market before its almost 10-time larger competitor, Uber.

Just like Uber to Amazon mentioned above, Uber to Lyft is the same as Alibaba Group to JD.com. Once the smaller JD.com went public, Alibaba soon followed.



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