Uber: An IPO Candidate in 2016?

In just five years, Uber Technologies, Inc. has ushered in the era of a “sharing economy” and disrupted a long-established industry by linking smartphone technology to anyone with a car who wants to earn some money on the side. Launched in 2010, the app-based technology/transportation company operates in more than 270 cities and 60 countries. The premise is breathtakingly simple. Use a smartphone application to connect someone who needs a ride with an Uber driver who happens to be in the area, and do it faster, cheaper and with better customer service than taxi cabs. Five years after its launch, Uber is said to be valued at around $60 billion, which makes it a prime candidate for an initial public offering (IPO). But will 2016 be the year for Uber’s coming out? Anxious investors are hoping the answer is yes, but there are several factors that may cause Uber to postpone its IPO for another year or two.

Uber Is Cash Rich

Since its founding, Uber has never had any trouble raising capital to fuel its growth. In its very first year of operation, it managed to raise more than $1.25 million, and it has gone on to raise an unprecedented $8 billion in capital from venture capitalists and other private funding sources. It is this kind of money that might lead the company to believe it does not need to go to the public through an IPO. The latest round of financing, which brought in more than $2 billion, may well have been the reason why the company decided to not go public in 2015, and it may not see any reason to do so in 2016.

Uber’s Sky-High Valuation

With its latest round of funding, analysts have estimated Uber’s valuation to be somewhere between $50 million and $70 million, which makes it more valuable than 400 companies in the S&P 500. It is estimated the company generated $400 million in revenue in 2014, and some analysts have forecast more than $2 billion of revenue in 2016. That would push its valuation up over an unprecedented $100 billion. The risk to Uber in an IPO is whether the public market will agree with that valuation. Such a sky-high valuation may be too much for the public market to swallow, which could lead to an underwhelming IPO and a weak share price. Uber might be better off waiting until the market is better able to absorb the massive valuation.

A Shaky U.S. Stock Market

At the beginning of 2016, the stock market got off to a shaky start with its biggest first-week decline in history due largely to China's economic crisis. If the Asian contagion should spread globally, the stock market could very well head lower. Rising interest rates, indications of inflation and stagnant job growth could exacerbate the problems for U.S. stocks, making it the worst time to go forward with an IPO. Uber and its investment bankers will take market conditions into account before deciding to go public.

Uber Founders Are Not in a Hurry

For many of the reasons stated above, Uber founder, Travis Kalanick, has publicly stated he is in no hurry to take the company public. Although company executives have indicated on several occasions their desire to go public, they have given no time line and no indication an IPO would occur any time soon. In a speech he gave at a tech conference in October, Kalanick said his company is too immature to take that course. Uber is still in a stage of development, expanding into new markets and testing new technologies, and it continues to battle its way through legal and regulatory challenges brought forth by governments, transportation regulators, organized labor and taxi companies.

Conclusion

An Uber IPO would be massive and the most widely anticipated since Facebook. No other company has so successfully combined a traditional industry such as transportation with mobile Internet technology to become a globally disruptive force. Its IPO has been anticipated for at least three years, and private investors have $8 billion at stake. The impetus for an IPO continues to build. Uber, with no immediate need for a cash infusion, can afford to wait until all of the planets are aligned, but its investors will become increasingly anxious to see returns on their investments. It just might not be in 2016.