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Uber’s Flop IPO: More Stock Downside Could Be in Store as Competition Heats Up

It wasn't surprising to see Uber's (NYSE: UBER) stock slip after the ridesharing giant made its much-awaited debut as a publicly traded company last week. There were indications that Uber's IPO was going to be an underwhelming one despite the company's move to price its shares conservatively, and the predictions didn't disappoint. On its first day of trading, the stock fell more than 7.6% from its IPO price.

What's more, Uber stock slipped another 10.7% on its second day of trading. As of this writing, the company's market cap is around $62 billion.

Ballooning losses, higher expenses, and a slowing pace of growth have taken their toll. And don't be surprised to see Uber stock losing more value as it faces tough challenges.

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Don't miss these ominous signs

Investment bankers were bandying about a $120 billion valuation for Uber last year. But Uber priced its offering in a range of $44 to $50 per share, expecting a valuation in the $80.5 billion to $91.5 billion range.

The fact that Uber's stock fell and its valuation is now below the lower end of the company's expected range seems justified. Uber has clearly told investors not to expect a profit as it spends money to grow the business and keep the competition at bay.

According to an updated S-1 filing, Uber estimates its 2019 first-quarter revenue increased around 19% year over year to a range of $3 billion to $3.1 billion. It expects to report a loss of around $1 billion during the quarter, while the operating loss for all of 2018 was $3 billion.

Uber's top line increased 42% in the previous fiscal year to $11.27 billion, so the slowdown to a 19% increase is worth noting.

So what has caused Uber to lose its momentum? The first thing that springs to my mind is that the competition is taking away Uber's business.

E-commerce research company Edison Trends has found out that Uber's market share in the ridesharing space has dropped 4 percentage points to 64% over the past year. That doesn't come as a big surprise, because the growth in Uber's monthly active customers has slowed down in recent quarters.

While Uber's "monthly active platform consumers" increased 35% annually in the final quarter of 2018, rival Lyft saw a 46% annual increase in its active riders last quarter. Uber defines monthly active platform consumers as "the number of unique consumers who completed a Ridesharing or New Mobility [includes bikes and scooters] ride or received an Uber Eats meal on our platform at least once in a given month, averaged over each month in the quarter."

Now that its growth has taken a hit and the competition seems to be eating into its market share, Uber's market cap could fall further, as bearish sentiment can send the stock lower.

Uber faces a bumpy path ahead

A bad stock market debut doesn't mean that Uber will never recover, but the company will need to stay on top of its game to pull things together.

This is because the ridesharing space is witnessing all kinds of diverse competition that could upend Uber's business. Tesla's (NASDAQ: TSLA) Elon Musk, for instance, has an outlandish dream of putting a million "robotaxis" on the roads by next year.

Musk plans to achieve this by upgrading existing Tesla cars with a software update that will give them further self-driving capabilities, letting Tesla owners rent out their vehicles as taxis. This is a really tall claim to make, but it does provide an indication that Uber's market share isn't safe, because nontraditional players are looking to enter the shared mobility space.

Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) self-driving subsidiary, Waymo, is already making steady progress in the robotaxi market. It recently picked up its 1,000th ridesharing customer in Phoenix, nearly six months after launching the service.

Waymo's growth might seem slow, but don't forget that its autonomous ridesharing program was made commercially available to only limited customers across a limited area in December last year. As Waymo expands its service to more markets, there's a good chance that it might be able to eat into Uber's market share.

The bottom line is that Uber has a lot to lose in the ridesharing space.

This is why CEO Dara Khosrowshahi needs to make good on his promise of making Uber the Amazon of transportation, a scenario in which the company can dominate multiple markets and destroy the competition that steps into its path. But if he fails to do that, Uber stock could be in for a rocky ride.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Tesla. The Motley Fool has a disclosure policy.


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