Exactly two weeks ago, we asked if Uber – the world’s most valuable private company – is heading for a valuation-crushing, 40% discount down-round.
Some of our arguments were the following:
- First, those hoping for a ‘return of the king’ moment were disappointed after it was confirmed that Travis Kalanick isn’t coming back.
- Second, the hot money is flowing to Uber’s rivals. DiDi Chuxing, China’s largest ride-hailing firm, has invested in Middle East online taxi service Careem in a new partnership deal that marks Didi’s latest international expansion against rival Uber
- Third, WSJ recently reported that Uber plans to wind down its U.S. subprime car-leasing division to stem unsustainably high losses
- Finally, according to recent press reports SoftBank was considering buying Uber shares from Benchmark with The Information noting that the transaction would value Uber at between $40 billion and $45 billion, a 33%-40% drop from the firm’s latest $68 billion private round valuation.
Two weeks later, we are already half way there because as the WSJ reports, at least four mutual-funds have marked down their investments in Uber by as much as 15% – the first ever price cuts that, suggesting that the endless volley of scandals and bad news chasing the ridesharing company has finally caught up with it.
Vanguard Group, Principal and Hartford Funds all marked down their shares by 15% to $41.46 a share for the quarter ended June 30, according to the fund companies’ latest disclosure documents. T. Rowe Price Group Inc. TROW 1.51% cut the estimated price of its Uber shares by about 12% to $42.70 for the same period.
Since Uber shares don’t trade publicly (yet, maybe never) mutual-fund holders must estimate the shares’ worth each quarter and mark them to estimate. According to the WSJ, seven mutual-fund companies had mostly maintained a $48.77 share price since the fourth quarter of 2015, when Uber first sold its shares to investors at that price.
Mutual-fund companies determine the valuations for closely held companies by a special committee that sits apart from the portfolio managers who buy and sell stocks. To value illiquid shares, such committees typically look to a company’s financial information, the value of publicly traded rivals, and share prices paid by investors in previous funding rounds.
Meanwhile, with Uber’s dirty laundry in danger of being “discovered” following the recent lawsuit by early investor Benchmark, the company’s search for a replacement to Kalanick appears to have hit a roadblock. Worse, since the latest legal feud began earlier this month subsequent to the mutual-fund filings’ June 30 ending date, and has since spiraled into a broader battle among shareholders, it is likely that even more acute writedowns will be taken in the coming days.
Meanwhile, the most troubling news for Uber is neither who sits in the corner office, nor how many lawsuits it is waging, but its persistent and unrelenting cash burn.
Amid all the controversies, Uber has sought to shore up its financials after reporting a loss of more than $3 billion last year and $708 million in the first quarter, according to people familiar with the matter. The company in July combined its money-losing Russian operations with Yandex NV’s Yandex. Taxi, the more popular ride-hailing firm there. Uber is also winding down its U.S. subprime auto-leasing business after realizing losses per vehicle were $9,000 on average, 18 times what was previously believed, according to people familiar with the matter.
To be sure, Uber has some time before it has to panic: the company had about $7 billion in cash at the end of Q1, and its revenue totaled over $3 billion in the three-month period, up 18% from the fourth quarter. Of course, by the time Uber’s balance sheet becomes a matter of attention, the company’s valuation will be a shadow of its $68 billion peak. That would be bad news for at least seven mutual-fund companies who own shares in Uber.
Several of them first buying in during a 2014 funding around at $15.51 a share. The price has roughly tripled since then through a series of funding rounds, but Uber hasn’t raised new capital since last year at the $48.77 price.
And now it’s time for the dreaded down-rounds.
Of course, should the world’s “most valuable private company” fail to go public before its first down round, it would have a huge chilling effect on the rest of the VC and IPO market. Meanwhile, even as most “Unicorns” have opted to stay private for now amid a pullback in startup funding and questions about overheated valuations, some companies backed by mutual funds have recently dared to IPO with largely adverse consequences. These include Snap, whose stock has fallen about 17% from its IPO price, and Blue Apron Inc., whose shares have cut in half since the public offering two months ago.
As for Uber, the golden child, or rather gold-plated unicorn, of the VC world, is about to get reacquainted with valuation gravity. Which, in light of its broadly deflationary impact on a broad range of industries that simply soak up VC funding in a futile war for market share, may be just what the Federal Reserve – not to mention thousands of depressed taxicab Medallion owners – ordered.