Uber and Lyft Race Toward IPOs Next Year as Banks Line Up

Eric Newcomer and Alex Barinka

Updated Tue, Oct 16, 2018, 6:56 PM

Wall Street’s top banks, vying for a coveted underwriting spot on Uber’s IPO, suggest the San Francisco company could produce one of the most valuable offerings ever. In their pitches to Uber, Morgan Stanley and Goldman Sachs Group Inc. said the business could be valued at about $120 billion in an IPO, people familiar with the matter said, who asked not to be identified because the discussions were private.

Meanwhile, Lyft has selected JPMorgan Chase & Co., along with Credit Suisse Group AG and Jefferies Financial Group Inc., to lead an offering in the first half of next year, according to people familiar with the matter. The banks proposed a valuation range of $18 billion to $30 billion, with a target of $25 billion, one of the people said. That valuation for the second-largest U.S. ride-hailing company would be based in part on a comparison to GrubHub Inc.’s food-delivery business.

Uber Chief Executive Officer Dara Khosrowshahi has said publicly that the company is targeting an offering in the second half of 2019. But he’s now considering moving up that date, said some of the people familiar with the matter. Khosrowshahi recently said privately that he wants the company to go public in the first half of the year, one of the people said.

That timing could create conflicts for Lyft’s plan for a listing in March or April. Alibaba Group Holding Ltd. and JD.com Inc., two fierce Chinese e-commerce rivals, went public within months of each other, and that could happen again with Uber and Lyft. It could result in a game of chicken, where the first company to list shares defines expectations for the next.

Representatives for Uber, Lyft, JPMorgan, Credit Suisse, Jefferies, Morgan Stanley and Goldman Sachs declined to comment. The Wall Street Journal reported details around the IPO processes earlier Tuesday.

IPO Hurdles

Uber still has hurdles it needs to cross before it can go public. The company’s chief financial officer, Nelson Chai, only joined two months ago, and he needs to fill vacancies in his department. The business has lost more than $11 billion since its founding, and it shows no signs of letting up.

Uber is currently pursuing a bond offering led by Morgan Stanley, and prospective investors were informed that the company doesn’t expect to turn a profit for at least three years, a person familiar with the matter said. It anticipates revenue of $10 billion to $11 billion this year, compared with less than $8 billion last year, the person said.

Lyft generated $563 million in revenue in the third quarter, up from $300 million in the same period a year earlier, one of the people said. Losses increased to $254 million in the period, from $195 million last year, the person said. Research and development, along with hiring expenses, have been contributing to the growing losses.

Investors have said privately that Lyft should be valued based on gross profit. The company generated $256 million in gross profit in the third quarter, up from $114 million in the same period last year. In June, Lyft said it was valued at $15.1 billion in a private funding round.

Bank Pitches

The largest IPO to date is Alibaba’s $25 billion offering in 2014. SoftBank Group Corp.’s expected listing of its Japanese mobile unit is likely to best Alibaba. SoftBank has picked advisers to help sell about a one-third stake that could value the wireless business at more than $80 billion, people familiar with the matter said last week.

If Uber’s valuation is anywhere close to $120 billion, it will be a gigantic offering. Public investors ultimately will decide what Uber is worth. The bankers’ speculative valuation is a 122 percent increase over the blended price that SoftBank paid to invest in January and 58 percent over the price at which Toyota Motor Corp. purchased shares in August.

Shares of SoftBank, Uber’s biggest shareholder, rose as much as 5.8 percent in Tokyo. Toyota climbed as much as 1.7 percent.

Banks create IPO valuation scenarios before a company requests pitches in an attempt to win business when it’s ready to proceed with a listing. A company the size of Uber will receive estimates from multiple firms, especially as it has indicated that it’s getting close to going public.

For the biggest private technology companies, valuation expectations can change drastically in the months leading up to a listing. Snap Inc.’s valuation was seen as being as high as $40 billion five months before its IPO last year, a person familiar said at the time. The company’s IPO ended up valuing it at about $20 billion. In June, Chinese smartphone maker Xiaomi Corp. went public in Hong Kong at a $54 billion valuation after targeting $100 billion just months prior.

(Updates with SoftBank, Toyota shares in third to last paragraph.)

To contact the reporters on this story: Eric Newcomer in San Francisco at enewcomer@bloomberg.net;Alex Barinka in San Francisco at abarinka2@bloomberg.net

To contact the editors responsible for this story: Mark Milian at mmilian@bloomberg.net, ;Elizabeth Fournier at efournier5@bloomberg.net, Michael Hytha

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