Your Guide to the Uber IPO

through billions of dollars in investor cash. Ubers twelve billion dollar valuation is seventeen billion dollar valuation massive forty billion dollar valuation. It also was embroiled in scandal. Uber came to symbolize the worst of Silicon Valley excess, with a complete disregard for regulations and a fierce win at all costs mentality. Uber founder Travis Kalanik announced he's resigning as CEO after five major investors to man did that he go?

It marks a stunning downturn for one of Silicon Valley's highest flying startup. Former Expedient chief executive Dara Kasrosha he took over this week he replaced Today. Uber says it's reformed, it's been playing nice with city officials. The company's CEO has met with prime ministers and presidents, and the company is spending millions on new businesses. Perspectives that we had so been anticipating has been disclosed. Uber a seeking evaluation

of eighties six billion dollars. That's about twenty eight percent lower than the tw billion dollar targeting. This week, Uber shares finally hit the public market. It's a moment that employees, investors, regulators, and many journalists, including my friend Eric here, have been waiting for. And it might also be the ultimate test of whether the new world of the so called gig economy can grow up and turn into a normal and dare we say, even profitable business. I'm brad Stone and

I'm Eric newcomer, you're listening to decrypt it. So, Eric, you have been covering Uber for Bloomberg Technology now for almost four years. So personally, what does the I p O mean for you? It sort of feels like Uber is growing up and going away to college. So it's this fascinating moment where it's going from this private, sort of secretive company to this, you know, globally sort of much more open and transparent machine. Brad, I mean you've covered it, sort of, no less closely, wrote a book

on the topic. How how are you feeling right now? You know? To me, I mean, the story of Uber is like in part of the story of San Francisco over the last decade, the story of getting around in cities. I just spent a couple of days in l A. You know, I don't rent a car when I go to cities like l A anymore. It's such a remarkable story of changes in urban transportation, changes in the global economy,

and then changes in the way people are working. Right now, I think we need to to layout the two characters here. We've got Travis Kalenik, you know, the co founder of Uber, who defined sort of the image. He's the brash CEO who is willing to ignore regulators, operating gray spaces, destroy competitors. Travis still owns a good percentage of the company, right, how wealthy will he get in the next week, Well, it depends how much it's worth. But he owns nine

percent of the company, so that's pretty easy math. If it's worth a hundred billion, dollars. That's about nine billion dollars. But he's going to be a multi multibillionaire because of his role in creating uber okay. And now his successor, Dara Kazra Shahi. How much does he own? And and describe him and how is he different from Travis? Dara is the professional CEO. He was hired after all of

Travis's shenanigans. Travis gets ousted in and then Dara is the dark horse candidate who the board picks from Expedia to sort of stabilize the company. Dar is going to be far less wealthy. His compensation is largely tied to getting the Uber worth billion, So how much he actually makes off this whole thing will depend on his success at getting the company to sustain a really atmospheric valuation for a significant amount of time. How do you think

Dara has done? Oh? I mean from a from a public image perspective, it's been remarkable, right, not not only the press attention that Uber gets, but the way in which regulators and cities like London and New York City you are, I think are more willing to come to the table uh and talk to Uber and create some

kind of sensible rules. I mean, the bottom line is that for me at least, and tell me if you disagree, and some certainly do, that Uber has been good for cities there there have been negative impacts, like you know, increase congestion. But but but by and large, they've increased an opportunity for drivers, and they have solved a massive

taxi shortage and a lot of cities. And yet, you know, because of Travis's reputation, because of the companies early orientation towards breaking rules or not negotiating and launching without permission, Uber just got this bad reputation. I think Dara has helped that quite a bit. I think on the optics front,

there's no question he's turned things around. The only caveat I think I'd give it is just, you know, the status of drivers, that they're independent contractors and not workers, that they don't have a lot of visibility into how much money they make. I think if you had to think of the sins of Uber's business model sort of establishing the gig economy, that ethical question is alive today

just as much as it ever was. You know, Eric, when I told you I was ubering around l A yesterday and I talked in preparation for this, I talked to every driver. There was one guy who was a nursing student and he was driving in the margins of his time in between classes. There was another guy who was a parking attendant who was doing this some days after work to earn some extra money. So to me,

you know, it's created a new kind of opportunity. It's probably been a poor full time job, but um, you know, but without some of the protections that kind of normal full time labor has so eric Before we go any further, explain, explain to me the significance of this I P O moment. Right. Uber has never had any problems raising capital, So why

do this at all? Right, for most companies, you go public because you need a massive amount of money to make the next leap, to really say, okay, we're going to deliver what we've been doing on a much larger scale. They've raised like twenty billion dollars on the private markets, which is an obscene amount of money. It's more about letting those existing shareholders that they've sold to be able

to trade shares in a public market. So letting some people sell their stakes, it's allowing different people to come in and invest in Uber. And I think it just also is going to force them to operate with a little more quarterly rigor, right and and and they have been operating in a quasi public manner. I mean, you've been getting a lot of those quarterly financial statements. But certainly, uh, the wider world, as you say, retail investors will now

be watching closely. And the one thing that they will be looking for is whether this company can ever make any money? Right, So, how how's that looking? So if you let's think about Uber his losses for a second, if you're talking about money out the door, they're losing ten billion dollars over the last three years. So it's a huge amount of money just to set the stage. And so then the question is can they outgrow it?

Can they keep finding new ways to drive the revenue up so that somehow this could sort of be a profitable business. But Eric that the court transaction that underlies Uber the ride, I mean, there's so there's no reason that that should be unprofitable, right, right. I was rereading Garrett Camp, the other co founder of Uber's original slide deck, when he was planning Uber out, and he was said it was designed to be profitable, you know, and it

seems so intuitive. Ubers take in the percentage of the fair that should be pure profit. That's a great business. That's why everybody loved Uber. The problem has been one competition. People are happy to switch between Lift and Uber, so when they're discounting, those discounts can be very expensive between the two companies. So that's been a major source of costs. But then there are other things. You know, Uber is now a company allowing people to move around the world.

The risk that somebody dies or other forms of injury makes their insurance costs super high. So turns out there actually all these sort of embedded costs to how you run that business. And I would imagine that the hope is that this business will get more profitable over time because either you know, some rivals will will go out of business or leave the market so they'll be able to raise fares, or that they'll kind of grow into into greater scale. And so I guess that raises the

question like how much growth is left. I mean, you look at a city like San Francisco or l A or a lot of cities around the world, and you think, you know, you can't really put too many more cards on the road of traffic is already pretty bad. So how how much runway is there left for Uber? Uber? You know, and it's s one plays a sort of funny word game, right. They talk about the serviceable addressable

market and the total addressable market. In the serviceable addressable market, that's like competition with lift there dominate everywhere all over the world. They say, Okay, we have more than six of the market share, but then when it comes to total addressable market, they talk about it, you know, having less than one percent, because their point is transportation itself is huge and ride sharing is just at the beginning

of that disruption. So what you're saying is the company is selling investors on a story that's much bigger than ride hailing. Let's talk about that next. Okay, Erica, So let's talk about Uber's future. You know, Uber is pitching this business as being much greater than ride hailing. So what what does the Uber of tomorrow look like? Well, we know it has food delivery, and that's an area where Uber has been super successful. I mean, the growth is more than year over a year, and that's what

excites investors. It's long had an autonomous car research project. That's a bucket. There are scooters and electric bikes, and then there's this logistics business which is basically helping trucking companies and getting freight delivered all over the United States. So those are sort of the categories we know today. You didn't mention the flying cars. Oh yeah, the flying cars.

It sounds like a joke, but of course they do have a research effort in flying cars, but it's more partnering with outside helicopter sort of companies, so they're trying to spend less money there. But you know, the future is everywhere to Uber and even flying cars. And do we what do we know about these new businesses, like how promising do they look? You know, we can see growth on uber eats. I I do think, you know, it's again an area where Uber is able to show, okay,

we can tack on new things. But it's hard to understand how uber eats sort of operates profitably in the future, right. I don't know if there's enough information to really model out their business model. You just sort of have to trust that sort of people's way of eating is changing and that there's a reason that all these food delivery companies are growing at once. Looking at food delivery, I

mean there's so many companies. There's door Dash, which has grown out of nowhere, there's still Postmates and caviare, and then there's already public crubhub. Do you think you know, in startups, usually it's the focus competitor that's seen as having the advantage. Do you think Uber's sort of platform approach will actually help it in food delivery? You know, another way to ask that is like, how are they

leveraging their their current strength to get into the new market. Well, you know, on the consumer side, it's a different app, right, So it's not like there's a convenience that you're an Uber user. You're gonna be an Uber Eats customer also, And on the driver's side, I feel like the advantage is more illusory. I think the drivers that are are delivering for uber it's are different than most of the time, it seems to me, than the drivers that are taking passengers,

you know, to and from the airport. So I don't know what advantage that they have. I think at one point they had this sensibility that you know, they were going to like have more prepared meals or a smaller selection and to deliver faster. That's kind of gone away, So I think they're kind of now just trying to compete with more focused competitors in the market that those

rivals know a little bit better now. Uber also brings up the Amazon comparison, as everyone does these days, and says, you know, cars are to us what books are to Amazon. And I don't know, I find that to be problematic as well. I mean, Amazon had, you know, one customer that was buying things from it, and on the back end of distribution system, these the warehouses where they could

apply technology to deliver more efficiently. And and yes, the warehouses were stocked with books, but it wasn't a huge leap to put toys and CD ROMs and and uh and then ultimately clothes and jewelry and those same facilities. But you know, as I say, Uber, it's a it's a different customer, it's a different app, you know. And then and then on the on the back end, the kind of different driver with different important things about you know, speed and keeping food warm and getting it to the

customer quickly. So I don't know, does the Amazon comparison hold water to you? Right? I think you draw a smart comparison. I mean, Amazon lost so much money because it's building up all this infrastructure, it has these warehouses, but then when it's done with them, it has this great advantage over competitors and it can use them to beat them and other products. So the question for Uber is just does it have that same sort of situation you talked about drivers. How much is a driver base

for one product useful for another. I'd say somewhat, and I think honestly Uber would agree that to some degree they're different drivers. What Uber would really argue is it's a technological advantage that they're a logistics expert, and I that's not the best mode in the world, just sort of an s furtise versus an actual network effect. Okay, well, so let's talk about the big day Thursday, trading begins

actually on Friday. What do we know about how excited the market is for this listing, Well, they're excited at a price. Uber set a conservative sort of range that would value the company at eight to ninety billion, and we've reported that certainly within that range at the low end, there's plenty of appetite to buy the eight to ten billion dollars worth of shares that would get Uber public.

And so now we're in this sort of gamesmanship phase where Uber tries to read the markets and decide whether they should raise the price, whether they should keep it where it is, because of course I p O is, unlike any other financial event, have this very perverse goal, which is you want to go public below the price you actually think you're worth, so that all those sort of fidelities of the world euro prices get some sort of get out or so boost when it starts trading,

and that gives them the return to keep them sort of convicted on your stock. And so it's this weird marketing game to show that early trading boost and and so they're sort of in the process of figuring that out right now. And it also seems like a referendum on everything that has happened in Silicon valid and the private capital markets over the last ten years. I mean,

the valuation of Uber was insane. So the last private valuation was seventy six billion dollars, right, But then investors went and said, and you know, pitched this idea that Uber could be worth over a hundred billion dollars. But let's just say it ends at around you know, the day ends, and Uber is worth about ninety billion. I mean, what does does it suggest that investors are are convicted

about the long term opportunity? Yes, I think we have to zoom out and say, wow, at nine billion, you know, it's worth more than General Motors. It's worth more than tons of major American come and ease. Right when you back out, it's still a remarkable business story that this was all built and basically the last decade. Okay, so we're as journalists and it's Bloomberg journalists. We do not get to invest in these companies, and we certainly don't

get paid for giving investment advice. But I just have to raise the hypothetical, Eric, would you be a buyer at a valuation at ninety billion buyer of Uber stock? It's funny. I know Uber super well, But to me, an investment in Uber is an investment on the macro economic environment and tolerance for companies with tons of debt,

and that is a subject which I know very little about. Uh. It feels like at some point there's going to be a reckoning over what to do about the fact that Uber loses so much money and to eventually value a company, you have to turn a profit, and so I just wouldn't want to be exposed to the uncertainty that at some point there's gonna be a market correction, and people want to be companies that can kick off cash because that's what they know is safe. I don't know, Brad,

what do you think about it? You know, I, first of all, I really do think that this over the long term, that this transportation market will be one with the application of of AI, you know, not just to you know, to create autonomous cars, but more efficient you know, routes and you know better better maps. And I think, you know, I think that actually other companies are maybe a little better situated. It's no longer a founder lead company.

You know, DARO is very incentivized to get the company through the I p O. Yeah, just a sees on that point. I mean, that is the funny thing. Right, So if you go public a hundred billion dollars, to be a good investment, you have to have a story to be a two in or billion dollar company, right because it's about growth. You need sort of new product ideas to keep understanding where it's going to go. And I think that the vision that Uber is the next Google, right,

I mean, do you I guess that's what I was saying. Yeah, Like, I don't know, you know, will this be an inventive company over the term. I mean I think that you know, that's often fueled by like the entrepreneurship inside the company. And you know, say what you want about Travis, you know, and some of the early co founders and engineers, but they had that and because of circumstances, because they got

very wealthy very quickly, they've kind of cycled out. So I guess I'm not convinced that in five years and ten years it continues to be a company that's inventing new things. And then one other point, you know, there are things here that probably limit their growth, which is like the tolerance of cities for more traffic, you know, like to put more cars on the road in the biggest markets you know, New York and l A and

Paris and London. You know, we're going to congestion pricing, you know, we're going to fewer cars on the road and not more. And so in their biggest business, ride sharing. You know, it's like you're gonna have to grow in the smaller cities and the suburbs. What do you think it means for other companies and for Silicon Valley overall? If the c I p O goes well, the music keeps playing, you know, the party keeps going. Uber worked, the doubters were raw, the way Silicon Valley does business works,

and that the technology is still transforming the world. You know, right now Weber is looking like a success story for Silicon Valley. So, Eric, last question. Uber is going public on Friday, but the more important day might be in three months time when it announces their first quarterly report as a public company. So what what do you think then they will be like and and and what will investors be looking for? And is it different than the way people have been evaluating this company for the last

ten years? You know, Then we get into this world where people are judging Uber relative to past performance. It's all about expectations, you know. It starts this quarterly machine of did they increase revenue, how's the ride sharing business doing, how is uber Eats doing, how are the losses? You know, then we really have a much more sort of established

framework for what it's worth. And then it's how well can I execute on that so this is a long journey, um, and can you imagine, you know, if if the stock performance isn't great and then we get like active ast shareholders and the whole drama around this company starts again. That will make your life more interesting. It's funny to imagine.

It's hard to guess who would be a more steady hand than our you know, I mean the dream journalist situation, of course, is Travis Kalanick saying this company is not the exciting one that I created, and you should put me back in the chair. But I think right now his reputation is too much in tatters for that to happen. And yet you have to imagine, though, that he is plotting his comeback, right, I mean, that's got to be in the cards. I would not count Travis out yet

he wants that comeback story one way or another. Well. I look forward to following the Uber journey as a public company, and Eric, I look forward to reading your stories about it. Thanks, and that's it for this week's episode of decrypt It. Thanks for listening. If you have a story to share, I'd love to hear it. You can write to us at decrypted at bloomberg dot net.

Or I'm on Twitter at Eric Newcomer and I'm at brad Stone And please help us spread the word about our new season by leaving us a rating or submitting a comment in your favorite podcast app. This episode was produced by Peo Gedcary and Lindsay crowd Awell. Our story editor was Anne Vandermay. Thank you also to Emily Busso and Aki Edo. Francesco Levi is head of Bloomberg Podcast. We'll see you next week.