First-mover advantage or disadvantage: Uber and Lyft’s IPO Race.

Losses, lawsuits and Lyft’s upcoming IPO – there couldn’t be a more challenging time for Uber to announce the possibility of going public.  

Yet, last week it was revealed that Morgan Stanley and Goldman Sachs may underwrite Uber’s IPO at the beginning of 2019, which is surprising as it was previously communicated that Uber wants to enter the public market only in the end of 2019.

The valuation: an unexpected $120 billion – making Uber’s IPO the largest since the Alibaba Group in 2014.

This comes at a time when Uber’s strongest competitor, Lyft, is preparing for an IPO in the spring of 2019.

Lyft – like Uber – is working on autonomous driving and has recently also conducted a strategic acquisition into the bike-sharing services.  Meanwhile, the company has received much less bad publicity and lawsuits while expanding beyond the US.

In short, as Lyft is picking up in momentum, the IPO could serve as a fundamental threat to the technology giant.

Game theory at its finest.

For an economist, this scenario might seem familiar. Two direct rivals both having to decide when to go public and both seeking a competitive advantage resulting out of the IPO. Who will be the first mover in this scenario?

 

As Lyft has scheduled its IPO for the spring of 2019, it seems like Uber has the chance to leverage on the first mover advantage by going public in early 2019. Going first gives it the opportunity to capitalize on the excitement that investors may have in the ride-hailing sector in general.

Certainly, the first ride-sharing company offering equity in public markets will gain much attention with a respective effect on the price. The IPO could help the first mover to acquire reputation and public trust along with returns on investment and a reduced personal risk.

But earlier does not always mean better. The IPO of the first mover can significantly raise the price, yet, it could also reflect that investors are still holding back money as both companies are being listed on top of each other.  

Uber’s and Lyft’s IPOs will set a benchmark within the ride-hailing industry in terms of pricing, valuations as well as the targeted stock markets.

This is especially relevant as the Chinese unicorns Grab, Didi, and Go-Jek might also aiming for an IPO in the foreseeable future with Didi being closer to it than the other two.

Tech market under pressure.

The battle of the two ride-hailing competitors has now moved from autonomous vehicles and bike-hailing to a significant IPO race. Besides concerns raised by recent incidents, investors will most likely be comfortable with Uber’s move.

Nevertheless, I do strongly believe that Uber’s decision to go public earlier than traditionally expected is not solely influenced by Lyft’s IPO but also by the general investment climate.

Markets have been less stable lately and the fears that bull markets have come to an end are spreading. In particular, tech shares have been hit hard in the past few weeks leading to concerns that technology companies will have a tough battle raising money.

While uncertainty is reflected in global markets, the ride-hailing company that can proof stability and growth has the potential to be favored by investors.

Unfortunately, Uber’s executive in charge of corporate deals has resigned as of today and will leave this IPO race subject to future interest.