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Uber IPO: A closer look at the investment case

After a considerable amount of anticipation, Uber is finally set to list on the stock market in May in what will most likely be the biggest initial public offering (IPO) of 2019. Choosing to list on the New York Stock Exchange, Uber is looking to raise $9bn, which could value the company at $90bn+.

Naturally, an IPO of this size is creating a lot of hype, particularly in the US where it will be listed. But do I think UK investors should consider the stock for their portfolios? Here’s a look at the investment case.

Uber: a closer look 

One of the first things to understand about Uber is that the company is a lot more than just a taxi business. When you consider what the company has already achieved in the space of just a decade, and examine what it plans to achieve in the years ahead, it becomes clear that this is a disruptive technology firm with serious growth ambitions.

Already, Uber has revolutionised the way we get around. For example, only a decade ago, if you wanted to catch a cab in London you were basically forced to choose between hailing an expensive black cab or booking a minicab. However, Uber changed that by enabling smartphone users to hail a ride through their phones. And now, it gives us a broad range of transport options such as Uber Pool, which allows us to ride-share with others for way less than the price of a regular taxi. Uber hasn’t just changed the taxi industry – it’s literally taken a sledgehammer to it. Today, it operates in over 700 cities worldwide and completes 15m trips each day.

Huge growth potential 

This could be just the beginning for Uber though. Take a closer look at the company and you’ll see that it has been diversifying its business model significantly in recent years. Today, it is focusing on:

  • Fast food delivery: Uber Eats is the fastest-growing segment of the business and looks set for big growth going forward. 

  • Freight: It recently launched its trucking service Uber Freight, which could be huge for the group.

  • Self-driving cars: It is a key player in the autonomous driving space and is working hard to get its cars on the road in the near future. 

  • Alternative forms of transport: It already offers scooters, bikes and even helicopters in some cities and is looking to expand this.

Overall, the firm estimates that its total potential market size could be as large as $12trn (yes trillion) when you combine transport, freight and food delivery. And according to CEO Dara Khosrowshahi, the group isn’t “even one percent done” yet.

No profits

However, while there appears to be huge growth potential, it’s important to understand that the group is not yet profitable. While it generated revenue of $10bn last year, the company made an operating loss of $3bn. To my mind, this makes the investment case more opaque as it’s harder to value the shares properly. Note that since rival Lyft floated recently, its shares have fallen 20%.

Weighing everything up, I see Uber as a speculative long-term technology play. When you consider its ambitions, it definitely looks interesting. But with profits still potentially a long way off, the investment case does look a little risky to me. I’ll watch for now.

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Edward Sheldon has no position in any shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.