Last week, Uber (Uber Stock Quote, Chart NYSE:UBER) ended up in a fender-bender of an IPO, as the stock dropped 18 per cent over its first two trading days.
But who’s responsible for the mishap? Was it underwriters Morgan Stanley or perhaps those cagey investors who were quick to flip the stock at first opportunity? Or maybe the trade war between China and the US? More than likely it was just bad timing, says Mike Newton of Scotia Wealth, who thinks Uber has a lot of growth potential as a burgeoning logistics company.
“Uber should have come out a lot earlier and they came out in a pretty bad market, which was not helpful,” says Newton, director and portfolio manager at Scotia Wealth, to BNN Bloomberg on Tuesday. “I would not be blaming Uber for the market or the market for Uber, or blaming Morgan Stanley for bad underwriting tactics. I just think it was a market situation where you had a lot of IPO fatigue.”
Ride-hailing company Uber made its debut last Thursday to much fanfare, raising a precedent-setting $8.1 billion in its IPO. But the stock stumbled out of the gate, opening at $42.00 per share, which was below its IPO price of $45.00, and then closing out Friday down seven per cent. Monday was no better, as the stock lost a further 11 per cent before climbing seven per cent on Tuesday.
Experts have pointed to a number of potential contributing factors, including overly aggressive pricing from lead underwriters Morgan Stanley, who have also been blamed for not doing a better job at vetting key investors.
“In retrospect, the underwriters should have done a better job at figuring how strong the true demand was,” said Jay Ritter, a professor at the University of Florida’s Warrington College of Business who specializes in IPOs, to Bloomberg News. “But underwriters in general have a hard time finding out how much buy-and-hold demand there is, versus flippers.”
Concerns over Uber’s lack of profitability have also been flagged as potential culprits, along with poor performance over by competitor Lyft, who IPO’d in late March, and general market unease over the ratcheting up of trade tensions between China and the United States.
Newton says Uber’s future success will depend upon finding uses for its platform that go beyond ride-hailing and food delivery.
“I’ve seen the Uber app progress over the last number of years. You can split fares, you can share, and Uber can get into all kinds of other verticals. They’re working almost exclusively with McDonalds right now,” Newton says.
“I’m not buying Uber in my portfolios. I’ll wait about a quarter to see how it all shakes out,” he says. “But if Uber can do what Jeff Bezos did with Amazon but do it with logistics, it could be much more exciting than what most people think.”