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Innovation Radar

The Logic of Uber’s IPO

Uber is intended to hit the stock market at a valuation of $82.4bn. Here’s a few things to keep in mind:

The target valuation was initially $100bn, but since Lyft was introduced on the stock market on March 28 and lost already 27% of its initial valuation, Uber had to be more conservative.

Uber never made a dollar of profit since its launch 10 years ago (just last year its net income was negative $1.8bn).

Uber is a land grab operations to get as many rides as possible every month, up to now they’ve been free to burn as much cash as possible to do so.

All the scandals about the toxic culture at Uber under CEO Travis Kalanick leadership haven’t been much of the concern for the IPO.

Uber is sorry (again) about its toxic culture...
Uber is sorry (again and again) about how toxic is culture is. Investors are unfazed while the management team continues to deliver growth…

The recent strikes of both Lyft and Uber drivers have had few (if any) impact as well.

The big winners right after the IPO will be Softbank Vision Fund (the investment branch of the Japanese Softbank conglomerate), Benchmark (based in San Francisco and one of the few private venture capital firm making real money on the planet), and Alphabet (Google’s mothership)…

Softbank and Saudi Arabia win big at Uber’s IPO
In Uber’s IPO, four outside investors will have the lion’s share of the money created.

But also The Public Investment Fund of Saudi Arabia!

The money from Saudi Arabia flowing in the Silicon Valley made a lot of wave a few months ago. And, then no one spoke about it ever again.

Silicon Valley has a Saudi Arabia problem
The New York Times reporting in October 2018 on the unease of oil money now abundantly funding US tech. After the outcry, everyone is still grabbing the money… Just a bit more self-consciously?

What to make of all this?

Essentially just remember that all what is happening around Uber’s IPO, its stock price, and how it will evolve in the next months has nothing to do with the quality of the company’s business model. This is about betting against the stock market expectations.

The immense amount of money that will collectively fluctuate in the next days and hours is connected to the fluctuation of this same amount of money. The stock market is a syllogism. Money mirroring itself and trying to anticipate how it will move, to move before itself. I’m not sure everyone gets the irony of Apple as one of the biggest market capitalization the planet, having its headquarters in a street called Infinite Loop.

An excellent article from Recode on the role and power of Softbank in the current configuration of the Silicon Valley.

By Philippe Méda

Philippe has been training about 200 startups a year since 2007, consulted for dozens of multinationals on rupture innovation or corporate incubation. He also teaches innovation in key MBA programs in Paris and Shanghai.