$142 billion. The estimated combined value of Uber and Lyft. For a long time, these two ride-hailing firms have been promising a move into the equity markets. Finally, it seems the time has come. Both companies have filed initial public offering documents with the SEC in the U.S., meaning an IPO can occur in the next few months.
The reason these two events are so compelling, is that with the recent fall in the equities markets being the worst since the Great Depression, it was wondered if the IPO’s may be delayed. Yet, with a growing number of economists predicting some form of recession in 2020, many of the largest tech unicorns have actually accelerated plans for an IPO, such as Airbnb, Peloton, Casper and Beyond Meat.
The Uber IPO could be the largest in history. Despite a rollercoaster few years, where CEO Travis Kalanick resigned, a string of lawsuits and the company culture being questioned amid harassment claims, the company has battled through. Uber has begun research on driverless cars with ambitious plans for them to replace their entire fleet with autonomous vehicles, partnered with Barclays to offer Visa credit card and acquired Jump Bikes, resulting in the launch of Uber Bikes and thus is finally seeing light at the end of the tunnel.
For the big event, Uber have already appointed their lead underwriter for this immense occasion; opting to use Morgan Stanley. This is a massive win for the company, beating fierce rivals and the more-established global name of Goldman Sachs, with the firm able to expect to receive a substantial payday of between 3-5% of the capital raised at the IPO.
There are several reasons why Morgan Stanley came out on top for this coveted IPO. Firstly, the bank were early investors in Uber, taking part in an early round of funding for the company. Furthermore, they created a special fund allowing wealthy clients to invest in the fund despite little due diligence being done on the firm. Finally, yet perhaps most interestingly, Michael Grimes, the top technology banker at Morgan Stanley has actually been driving for Uber over the past few years. Despite a multimillion-dollar salary, this side hustle was designed to show the bank’s loyalty to the firm. There is no information around the details of his work as an Uber driver, but this highlights the changing nature of attracting the most lucrative clients by investment banks.
Nowadays, companies demand demonstration of loyalty to the brand, whether it by being used by the bank such as including Uber as a claimable expense, to the more unconventional methods of actually working for the firm in the case of Mr Grimes. Nevertheless, this process has clearly been years in the making for Morgan Stanley and is about to pay off.
Lyft has been living in the shadow of Uber but yet has grown rapidly and is rivalling Uber especially in North America. Lyft has amassed a market share of close to 30% of ride-sharing in the U.S., with targets to reach 35%- continuing to eat into Uber’s dominant share of over 60%. The main difference between these two companies is that Uber has adopted an approach centred around international expansion. Although this has led to some first mover advantage, often Uber have had to deal with huge regulatory problems, leading to lawsuits and even having to pull out of some markets such as China, Hungary and Denmark.
Therefore, Lyft has been focusing on stealing market share in places now embracing this technology-focused revolution within the taxi industry. Canada is a prime example- with Uber beginning operations in 2012, Lyft let Uber spend millions on lobbying and battling regulators, with Toronto only legalising such apps in 2016 after a long drawn-out dispute with Uber. This means that through clever marketing such as offering drivers generous bonuses and referral awards and providing discount codes to potential passengers- Lyft has capitalised on the hard work of Uber and the fact that the cost for a consumer to switch apps is nothing.
Lyft has opted for JPMorgan Chase & Co to lead the underwriting for its IPO. They will be supported by Credit Suisse and Jeffries Group, where there are expectations for the IPO to value the firm at more than $15.1 billion- the valuation at the last private funding in June 2018. As with Uber, a significant amount depends on global market conditions and investor sentiment at the precise time of the IPO.
2019 promises to be a busy year for investors, with two of the largest companies to ever list on the stock exchange doing so in the coming months. The investment banks hired are frantically preparing these deals, making sure there is demand for the companies at the prices they desire. The big question is- will they be successful?