The Fearless Girl statue is seen in the foreground as a banner announcing the IPO of Uber Technologies hangs outside the New York Stock Exchange, May 10, 2019.
Andrew Kelly | Reuters
Shares of ride-sharing company Uber are set to open more than 7% lower on Monday after disappointing investors in the most highly anticipated initial public offering of the year on Friday. The stock touched below $39 per share in premarket trading.
Uber began trading at $42 per share and dropped 7.6% on its first day on the New York Stock Exchange on Friday. The stock closed below $42 per share with a market cap of $69.7 billion. To be sure, the last two days have been volatile for the U.S. stock market amid a breakdown in trade talks with China. Dow Jones Industrial Average futures pointed to a drop of nearly 2% on Monday.
Uber priced its shares toward the low end of its target range of $44 to $50 per share on the eve of its debut. This share price gave the company a market valuation of $75.46 billion, which well below the $120 billion it was reportedly seeking when news first broke it was preparing to go public.
If and when Uber will generate a profit is a huge question for investors. Despite the market reacting negatively to the stock, analysts at New Street research think the shares are attractively valued and has a promising path to profitability.
“Uber will eventually reach high single digit margins, as a percentage of booking, as bookings reach $200 billion,” said New Street research analyst Pierre Ferragu in a note on Monday. Ferragu said Uber can reach 7% margin on bookings over time.
Ferragu also said individual usage is growing. “Uber can grow monthly active users 3x in the US, 4x in the rest of the world,” Ferragu said.
However, average ride per user is not growing, said Ferragu. “This conflicts with the idea that ride-sharing can continue to take share from other means of transportation, especially private cars,” he said. But Ferragu said average usage will pick up as user growth slows.
Ferragu also pointed out that against common wisdom, ride sharing penetration is low. With 50 million to 60 million riders in the U.S., only 30 million are active monthly users, which is only about 13% of adult urban penetration.
Many investors looked to Uber’s ride-sharing competition Lyft on the heels of Uber’s debut. Lyft is down almost 30% since it went public in March.
Uber CEO Dara Khosrowshahi said in an interview with CNBC’s Andrew Ross Sorkin on “Squawk Box ” that Lyft’s performance “led us to be a bit more conservative.”