Dara Khosrowshahi, chief executive officer of Uber Inc., center, rings the opening bell during the company's initial public offering (IPO) on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, May 10, 2019.Michael Nagle | Bloomberg | Getty Images
For Uber shareholders, Wednesday is a landmark day, presenting the first opportunity for most of them to sell stock since the company's IPO six months ago.
Wedbush analysts warned in a report on Nov. 1 that the lock-up expiration could "cause an avalanche of selling as early investors and insiders hit the bid," making Uber's "horror show" of a debut even worse.
But those nervous about a flood of shares hitting the market from investors who want to lock in gains can take some comfort in this: A bunch of that stock is underwater and even deeper in the red after Tuesday's 9% plunge to $28.38.
Of the roughly 1.7 billion Uber shares outstanding, about 1 billion have been locked up since the IPO in May. Wednesday is expiration day and, according to analysts at MKM Partners, about 90% of Uber's stock will be available for sale, with some insiders still restricted from unloading portions of their stake.
According to the company's IPO prospectus, about 545 million shares (32% of the current outstanding supply) were purchased at $32.97 or higher. Uber, remember, was the unicorn-era posterchild, raising a ton of late-stage capital between 2014 and 2018, after it had become a dominant ride-hailing platform and a household name even though it was burning billions of dollars of cash.
Most of those investments looked smart when Uber priced its IPO at $45 in May. But the shares have since lost 37% of their value, suffering their latest blow after Uber reported a quarterly net loss on Monday afternoon of over $1 billion. Private market investors are feeling the pain as Uber tries to convince Wall Street that a sustainable business is on the horizon — CEO Dara Khosrowshahi said Uber is targeting "total company EBITDA profitability for the full year 2021."
CEO of Softbank Group Masayoshi Son attending a news conference in Tokyo on February 8, 2017.Alessandro Di Ciommo | NurPhoto | Getty Images
SoftBank was by far the biggest buyer of pre-IPO shares, but big U.S. financial firms like Morgan Stanley, Fidelity, TPG and Tiger Global also participated in the financings, as did Baidu and CTIC from China. In those days, growth and market control was what mattered. Losses meant little because there was a fresh pipeline of investors enthusiastically willing to fill the hole.
As recently as this year, PayPal agreed to buy $500 million worth of shares in a private placement at the IPO price. PayPal said on its third-quarter earnings call last month that the investment in Uber, as well as MercadoLibre, resulted in a hit to profit and "created more earnings volatility."
Selling now by any of the late-stage investors would be acknowledging a bad bet, made all the worse by the fact that the broader U.S. market has experienced a sustained rally, with the S&P 500 and Nasdaq rising to record closes on Monday. Some investors unloaded a little in the IPO. For example, SoftBank sold 5.5 million shares (2.5% of its holdings) in the offering and TPG unloaded 1.4 million (4.3%).
Early investors and employees are still doing fine. In June 2014, five years into the company's existence, Uber raised money at $15.51 a share, and a year before that the price was $3.56. Options issued at that time are still very much in the money.
Additionally, SoftBank provided a lucrative partial exit to early shareholders, including ex-CEO Travis Kalanick, in early 2018, when the Japanese company spent about $6.6 billion to buy over 200 million Uber shares at $32.97 apiece. TPG bought 9.7 million shares for about $320 million at that price. Later in May, an affiliate of TPG and other firms bought another 15 million shares from Kalanick, first employee Ryan Graves and technology chief Thuan Pham, for $40 each.
An Uber spokesperson declined to comment. Representatives from SoftBank and TPG also declined to comment.
In Uber's later days as a private company, it issued restricted stock units (RSUs) instead of options. Unlike with options, employees don't have to decide whether to eventually purchase RSUs but are granted them as part of their compensation. They vest over a period of time and then become tradeable stock. Uber said in its prospectus that its share count excluded well over 100 million shares that would eventually convert from RSUs.
While recipients of RSUs aren't sitting on absolute losses, many may have suffered a tax hit due to the falling stock price. For employees whose RSUs vested on IPO day, their income was taxed based on the $45 share price even though they were locked up from selling for six months.
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