Skift Take

In initial public offering land, it's a long time until 2019. The markets are turbulent at the moment and there are big regulatory headaches that stubbornly persist, but investors are salivating at the prospect of dropping some money into Uber and/or Airbnb. These IPO plans could be very impactful.

If 2015 was a frenetic year for mergers and acquisitions in travel, next year could shape up as a bellwether year for initial public offerings as a couple of unicorns that have labored behind the shield of massive private fundings are racing to go public.

We are referring to the near-mythical creatures, Uber and Airbnb of unicorn notoriety, as well as the more diminutive Lyft.

The Wall Street Journal reported Tuesday that Uber is entertaining proposals to field an IPO from Goldman Sachs and Morgan Stanley at a valuation as steep as $120 billion, which is much larger than prior reports, and much-smaller ridehailing rival Lyft tapped JP Morgan Chase, Credit Suisse and Jeffries to underwrite a listing at a market value of around $15.1 billion.

Lyft could time its public-coming-out party for the first half of 2019 while Uber was considering the second half, but it could speed things up so as not to lose some momentum with Lyft entering the markets first, the Wall Street Journal reported.

Of course, homesharing service Airbnb, is likewise mulling an IPO in 2019, and has to overcome some skepticism about its regulatory prospects, among other issues. “As the company heads toward a potential IPO in 2019, Airbnb clearly has a lot of work to do,” a new Skift Research report, A Deep Dive Into Airbnb 2018: Tackling Roadblocks on the Runway, found. “Nevertheless, the company’s ability to shift and disrupt the way the industry thinks about accommodation and travel is a force to be reckoned with, and its economic and financial impact can no longer be ignored.”

By all accounts the IPO markets have been sizzling in 2018, and has been dominated by previously money-losing companies, which is certainly the case for Uber and Lyft, although not for Airbnb.

The Wall Street Journal reported that the UberEats business, which would account for about 16 percent of parent company Uber’s prospective valuation at a $20 billion chunk, would be profitable much sooner than the company’s core ridesharing service.

That contradicts remarks that Uber COO Barney Harford made at Skift Global Forum in New York City September 28 about the ridehailing service, which he characterized as “solidly profitable” for more than a year.

“So, you’re right I don’t have any specific comment on the IPO at this stage,” Harford said last month. “But, if we think about the business model broadly, I think it’s important to understand the core rideshare business is solidly profitable, and in fact has been solidly profitable now for the last five quarters.”

Harford said it was crucial for Uber to show that the company is on the road to profitability while it invests in adjacent areas, including self-driving cars and transportation on two wheels.

“The global transportation category is a $6 trillion category, and so we see in many of these adjacent areas substantial growth opportunities,” Harford said. “I talked about bikes and scooters, we are investing substantially in the development of autonomous driving technologies, we are building an ecosystem with Uber Elevate to create urban flight transportation of the future. And so, these are areas, that we think it continues to make sense to invest in. What’s important for us is to be able to show the path to that profitability and to show the profitable nature of the core business that we’re building, while at the same time we invest into these new categories.”

Harford wouldn’t budge on the critical issue of whether Uber would move to a model where its drivers would become employees, as many are demanding, instead of their current status predominantly as independent contractors.

“Look, I think if you look at this industry, if you look at the people who are providing transportation, taxi drivers, et cetera, these are self employed people, and I think we’re very clear in the independent nature of the work the drivers have, and we know the value that they place on flexibility, and I think we’re very clear, both from a legal perspective, but also from a philosophical perspective, the types of opportunities that we want to provide, and we’re able to provide through the platform,” Harford said.

Losses for Uber and Lyft but Not Airbnb

A private company that’s raised more than $20 billion in funding, Uber notched adjusted earnings losses of $404 million in the second quarter, a 32 percent leap from the prior quarter, on an 8 percent jump in revenue to $2.7 billion, according to reports.

Of course, the IPO climate for all of these companies can turn on a dime as market conditions could turn ugly by 2019. Just ask Kayak executives, who filed their IPO paperwork in November 2010, but didn’t go public until July 2012.

Steve Hafner, who was executive vice president of consumer travel at Orbitz when it went public in 2003, and CEO of Kayak during its 2012 Nasdaq introduction, said of Uber, Lyft an Airbnb that he has “no doubt that these companies will successfully go public at eye-watering valuations.”

But that would just be the beginning, he said. “The hard part will be what comes next. Public investors prefer a predictable path to prosperity and no governance or behavioral surprises. “Dara’s (Uber CEO Khosrowshahi) clearly a better leader in these areas than Elon Musk, for example. But I’m not so sure about the others, particularly in APAC. It’s going to be fun to watch.”

U.S. stock markets have been battered over the last couple of weeks, and there has been turbulence on foreign exchanges, too.

While Lyft hopes to go public in the first half of 2019, Uber faces a deadline from investor SoftBank to bring its IPO to fruition before the end of 2019, the Wall Street Journal reported, or else certain of Uber’s investors would be free to cash out their shares on the secondary market. That could take some wind out of Uber’s much-anticipated public debut.

Lyft is a fraction of Uber’s size and is currently North America-focused. Uber is much more global, although it withdrew from China and elsewhere in Asia, selling stakes but remaining an investor in Didi in China and Grab of Singapore, respectively.

Like Uber, Lyft isn’t profitable. The company, according to a Wall Street Journal story, saw its losses expand to $254 million in the third quarter, from $195 million in the year-ago period, while revenue leaped 87.6 percent to $563 million.

Like Uber, fellow unicorn Airbnb, which raised some $4.4 billion in funding and is valued at around $31 billion, hasn’t historically had the urgent need to go public, but is mulling obtaining its own stock symbol in 2019. Both Uber and Airbnb’s IPOs are highly anticipated.

Unlike Uber and Lyft, however, Airbnb is profitable. Skift Research estimates that Airbnb could notch some $900 million in earnings before interest, taxes, depreciation and amortization in 2018.

Not to be overlooked, the current year has had at least one high-profile online travel initial public offering. China’s Meituan, an e-commerce platform that offers food delivery and hotel bookings, among other services, raised some $4.2 billion in an IPO last month at a $53 billion valuation in Hong Kong. Booking Holdings, which is also a minority stockholder in China’s Ctrip, invested some $450 million in Meituan.

Meituan’s stock closed at $7.15 on Tuesday, down about 20 percent since its debut last month.

2019 Could Be Helluva Year

Online travel has seldom seen a year as action-packed as 2015 when mergers and acquisitions ran wild. Expedia bought seven companies, including Travelocity, Orbitz Worldwide and HomeAway; Ctrip bought Qunar and eLong; and TripAdvisor made smallish buys of ZeTrip, BestTables and Dimmi.

Although it’s far from certain, depending on market conditions and other variables, 2019 is shaping up to be a competitive-landscape-moving year, as well, with the potential IPOs of Airbnb, Uber and Lyft.

The two unicorns, Airbnb and Uber, especially, can potentially reshape the urban landscape, including skylines and streetscapes for years to come.


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Tags: airbnb, hotels, ipo, lyft, ridesharing, uber

Photo credit: Uber reportedly faces a deadline from a major investor, SoftBank, to execute an initial public offering before the end of 2019. 309052

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