With Uber Technologies Inc.'s shares plunging nearly 18% below its initial public offering price on Monday, the stock might be fast approaching a "white knuckle" territory, according to one Wall Street analyst.
After closing down 7.6% on Friday in its trading debut, Uber's stock dropped as much as 13% on Monday in New York, before closing down 10.8% at $37.10. The initial public offering was priced at $45.
"From a stock perspective, if Uber breaks $35, that is where it starts to get even more white knuckles," Wedbush analyst Daniel Ives said in a phone interview. "Right now the bears are winning, and there is nothing to stop these stocks from moving down, especially in a risk-off environment," the analyst added, noting the weakness in ride-sharing peer Lyft Inc., which was down as much as 5.8%.
While there are plenty of skeptics when it comes to the ride-hailing economy, the broader market sell-off amid escalating trade tensions between U.S. and China is also weighing further on the valuation of the two companies. Uber Chief Executive Officer Dara Khosrowshahi told staff Monday that it was "another tough day in the market," and warned of a weak showing.
"Uber and Lyft are caught in a perfect storm of China-trade related market choppiness, combined with worries around no profitability in sight, and a valuation knife-fight between the bulls and the bears," Ives said, noting that Uber's initial public offering was initially expected to be a positive catalyst for Lyft. "Once it ultimately became the opposite, it became a field day for the shorts," he said.
The bearish bets in Lyft have already caused concern for investors. The stock currently has nearly 62% of its free float held short, according to S3 Partners.
Falling to $35 would mean a more than 22% discount to Uber's initial offering price. The stock saw heavy trading on its second session as a public company. According to Bloomberg data, the total value of Uber shares traded Monday was $2.8 billion, surpassed only by behemoths such as Apple, Amazon, Microsoft and Facebook.
Uber's earliest investors are still making money off the initial public offering, but "for late-round investors, it's possible by the time they exit they will end up with a loss," said Jay Ritter, finance professor at the University of South Florida.
"It's clearly a high-risk, high-reward scenario. You're betting on something that may happen 10 years down the road," said Matt Kennedy, senior IPO market strategist at Renaissance Capital, a manager of IPO exchange-traded funds. "Public investors are looking at profits and not seeing any, and the company's growth in the last quarter was relatively strong, but I don't think it blew anyone away."
Information for this article was contributed by Esha Dey of Bloomberg News, and by Cathy Bussewitz of The Associated Press.
Business on 05/14/2019