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Picture this: it’s 3 o’clock in the morning, and all you want to do is leave the overcrowded bar, eat some pizza, and go to bed. Or you bought way too much stuff at Target TGT—because of course you had to look through the clearance aisles—and there is no way you’re getting all those bags home on the bus without tripping or falling. Or you just had a long, stressful day at work, and the thought of squishing yourself in with thousands of other commuters on the train makes you want to die a slow and painful death.
So what do you do?
You pick up your phone, open the Uber app, and request a car. Like a fairytale, your transportation woes vanish with the digital sight of a car heading your way.
Launched back in 2010, Uber Technologies Inc. is an app-based transportation company headquartered in San Francisco, California. Today, it operates in roughly 270 cities and more than 60 countries worldwide. The company uses a smartphone app to receive ride requests, and then sends out these requests to their drivers who transport customers to their final destination.
The emergence of on-demand rides has become a popular business venture all over the world, but it has proved difficult for companies to break away from the congested pack. At the end of 2015, Sidecar, another on-demand car service, officially stopped offering rides and deliveries.
In addition to the now-defunct Sidecar, companies like Lyft, Curb, Southeast Asia-based Grab, India’s Ola, and especially China’s Didi Chuxing have all started to eat into the ride-hailing market share, becoming huge competitors for Uber. Didi is arguably Uber’s biggest threat overseas, and the ride-sharing giant conceded defeat in August, selling its UberChina operations to Didi and ending an expensive, bruising battle between the two companies.
Even Alphabet Inc. GOOGL is becoming a threat to Uber, with plans to make its self-driving cars unit a stand-alone business. This initiative could put the company in direct competition with Uber, as the lack of a driver could keep costs down in the long-term. The company’s Google division also recently began a pilot program with Waze, a company they acquired in 2013, that enables thousands of San Francisco commuters to join carpools; Waze also offers real-time driving directions based on information from other drivers.
But Uber is right on Google’s heels, and as self-driving car technology becomes more commercially available, it would not be out of the realm of possibility that Uber could develop more business strategies focused on autonomous driving. The company recently announced that it is investing $500 million to create its own mapping technology, which would come in addition to the fleet of self-driving cars it is currently testing in Pittsburgh.
While Uber has seen great success, it’s journey has been a bumpy one. The company has been in and out of the news thanks to legal and publicity issues in a number of countries. From noncompliance issues in New York City to regulatory concerns and lack of driver background checks, Uber has drawn scrutiny and criticism, and has even been banned in The Netherlands and in parts of Thailand, India, and China.
It’s no secret that traditional taxi services are not happy with the rise of Uber and other ride-hailing companies, and many argue that Uber should be subject to the same regulations that they face. In dozens of cities it has moved in to, Uber has faced intense opposition, lobbying, and legal challenges against it from these taxi companies.
Uber has also been embroiled in a long-standing battle with its drivers. A group of drivers first sued the company back in 2013, claiming they should be classified as employees rather than independent contractors. As a result, Uber had been set to pay up to $100 million in reimbursement damages to almost 400,000 drivers, but recently, a federal judge in California ruled that the settlement was unfair.
But as the saying goes, any publicity is good publicity, and all of the bad press has yet to really negatively affect Uber. Despite losing over $1 billion in the first half of 2016, Uber gained just as much revenue in that same time period. Its ability to raise exorbitant amounts of money is incredibly impressive for a company who is less than a decade old, and this skill makes Uber that much more attractive to venture capital investors.
Despite these controversies, investors are eagerly awaiting an Uber IPO. Many have believed, or hoped, the company would go public for a few years now, but Uber CEO Travis Kalanick wants “to make sure [an IPO] happens as late as possible,” said in an interview with CNBC earlier this year.
If and when Uber finally decides to go public, its potential would depend on the broader IPO market and economic environment. As of now, IPOs in 2016 have not even raised $10 billion, with only a handful of companies seeing gains since their market debut: Twilio Inc. TWLO, LINE Corp. LN, US Food Holdings USFD, and Acacia Communications ACIA.
Looking ahead, it’s difficult to pinpoint how busy the IPO market will be. 2014 was the best year in more than a decade for IPOs, raising over $85 billion in offerings. Last year, however, saw a sharp drop in viable IPOs, having raised only $30.3 billion. This year has been even more sluggish, due to a handful of macro and microeconomic issues.
But an IPO for Uber could be massive for both the company and Wall Street. It’s currently valued at an amazing $68 billion after a total of nine rounds of funding worth $12.9 billion since its launch. And thanks to Uber’s structure—a unique combination of transportation company, mobile Internet company, and real world engineering—the company has been touted as one of the best future IPOs.
How Might Uber Perform?
Uber’s IPO, then, could go either way, but let one number stay in your mind: $68 billion. Let me write that again: $68 billion. This number is a hard one to forget, and a figure that will be on the forefront of many investors’ minds come the time of its public offering, as it impressively showcases just how far this startup has come in a few short years.
The pressure will be intense for Uber though; its status as the most valuable privately-held company will most likely draw attention from all over. And, it seems likely that this will be another IPO that entices the retail investor who is looking to cash in on a household name going public for the first time.
Interested in IPOs? Check out the special edition of Zacks Friday Finish Line, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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