2017 IPO Prospects: Uber and Lyft Have Miles to Go Before they List

Ride-sharing app Uber appears to excel in how to be in the news for all the wrong reasons. Earlier this year, the company was accused of turning a blind eye to sexual harassment in the office. Later on, there was a viral video showing its CEO Travis Kalanick berating an Uber driver. Then, this week, it landed in more trouble when it was sued over one of its app features that tracks drivers. But despite the negative publicity, Uber continues to remain one of the highest valued privately held companies and the market continues to await its IPO.

Uber’s Financials

But first the numbers. Uber’s constant legal battles haven’t hurt its financials. According to market reports, Uber generated $6.5 billion in revenue last year with gross bookings doubling to $20 billion. Further news leaks suggest that Uber’s net revenues grew to $1.7 billion in Q4 2016. But losses continue to mount. Net losses have grown from $2 billion a year ago to $2.8 billion in 2016. But analysts believe that the losses may be beginning to narrow.

Uber remains venture funded with $11.6 billion in funding from investors including Saudi Arabia’s Public Investment Fund, Morgan Stanley, AITV, Baidu, Benchmark, Bennett Coleman and Co, BlackRock, CrunchFund, Cyan Banister, Data Collective, Fidelity Investments, First Round, Foundation Capital, Founder Collective, Garrett Camp, Goldman Sachs, GV, HDS Capital, Innovation Endeavors, Jeff Bezos, Kleiner Perkins, Lone Pine Capital, Lowercase Capital, Menlo Ventures, Microsoft, New Enterprise Associates, Sherpa Capital, Summit Partners, Techstars Ventures, TPG Growth, Tusk Ventures, Valiant Capital Partners, and Wellington Management. Its last round of funding was held in June 2016 at a valuation of $62.5 billion. Some believe that Uber is currently valued at $68 billion.

Earlier this year, Snap listed itself and many believed that it had paved the way for the likes of Uber to list. But Uber has still not taken actions to go public. The and PR, missing profits, along with the constant legal battles must be putting a damper on the company’s otherwise rosy outlook.

Uber’s Worries

Uber’s case has been exacerbated by the continuous spate of legal battles and social media snubs against it. Besides the constant barrage of regulatory authorities questioning the ride-sharing model, Uber has to now deal with several PR fiascoes. It started early this year with Uber’s reaction to President Donald Trump’s first immigrant travel ban. Its surge pricing during the taxi ban and the subsequent tweet on the matter led to the rise of the hashtag #DeleteUber. 

The year didn’t get any better when Uber’s former engineer Susan Fowler Rigetti published a blog post that spoke of her experiences of sexual harassment while in the company that was made worse by the manhandling of the issue by the Human Resource department. Uber claims that formal investigation into the complaint has been launched in the matter. Soon after, social media got further upset with Uber when a video went viral that showed its CEO behaving rudely with an Uber driver.

Besides the social network, Uber is also fighting a case against Alphabet regarding Uber’s self-driving car technology, which it obtained from the recent acquisition of self-driving truck company Otto. As it turns out, Otto’s founder Anthony Levandowski was an ex-Googler and the technology he used to develop Otto was part of Alphabet’s self-driving car technology.

Then, earlier this week, Uber landed another lawsuit for the alleged use of a program called Hell. The $5 million class action lawsuit claims that Uber allegedly tracked Lyft drivers using a secret software program that was internally known as Hell. The program allegedly lets Uber see how many Lyft drivers were available to give rides and what their prices were. The lawsuit claims that Uber violated the privacy of Lyft drivers.

The news was followed by reports of Apple’s CEO Tim Cook threatening to remove the Uber app from Apple devices. Apple’s response was in reaction to Uber’s attempts to block Apple from discovering its attempts at installing ID tags on iPhones. These tags remained on devices even after users had deleted the Uber app and wiped the phone. Uber claims that the digital ID tags were installed to avoid the use of the Uber app on stolen devices and to prevent drivers from creating fraudulent rides on stolen phones. Apple insists that the step violated Apple’s privacy rules. If Apple decides to move ahead on the threat, it could be a worrying situation for Uber.

Uber’s Competition

Meanwhile, Uber’s competition is on the rise. There are already several local car-riding apps like Ola in India, Didi Chuxing in China that are making it difficult for it to expand internationally.

Other non-ride-sharing companies are becoming competitors as well. Alphabet continues to invest in making its self-driving cars unit a stand-alone business. It that were to go through, the new company would become a direct competitor. Additionally, Alphabet is also experimenting with a car-pool service through Waze. The pilot, currently being conducted in San Francisco, uses Waze to allow commuters to join carpools.

Lyft’s Financials

Lyft continues to remain Uber’s major rival in the US. It is still much smaller than Uber – generating about $700 million in revenues in 2016 and recording almost $600 million in losses. But that hasn’t stopped it from growing. The #DeleteUber campaign has obviously added to its might. According to Lyft’s reports, the week the #DeleteUber campaign was launched, there was a 60% increase in new passengers in the week for Lyft. Within the first quarter this year, Lyft saw a 34% increase in rides to 70.4 million. Lyft has also received a comparatively positive social media support based on its decision to support the American Civil Liberties Union (ACLU) to help fight the immigration executive orders in court.

Lyft has been venture funded so far and has raised $2.6 billion from investors including Icahn Enterprises, Rakuten, Coatue Management, Andreessen Horowitz, Founders Fund, Mayfield Fund, FLOODGATE, K9 Ventures, and fbFund. Earlier this month, it raised $600 million in a round supported by KKR, akuten Inc., and Janus Capital Group at a valuation of $7.5 billion. Prior to this round, Lyft had raised funds in December 2015 at a valuation of $5.5 billion.

But given the dismal state of their profits, I don’t think either Lyft or Uber is ready to go public. On top of that Uber will have to work hard on its PR to make it more appealing to the masses.

The good news for both companies is that there’s a tremendous amount of private capital sloshing around, so they can remain private for as long as they want to, even if their earlier investors or employees seek liquidity at some point.

Photo Credit: Núcleo Editorial/Flickr.com 

This segment is a part in the series : 2017 IPO Prospects