Uber IPO: A Lot Will Ride on CFO’s Choice of Metrics, Timing
Finance chief Nelson Chai will have to decide whether Uber will go ahead or trail rival Lyft and what performance indicators to share with investors
Uber Technologies Inc.’s finance chief will play a critical numbers game as the ride-hailing service races toward an initial public offering riding a potential valuation of $120 billion.
Central to the IPO will be the metrics Nelson Chai, who became Uber’s chief financial officer last month, chooses to justify what some experts consider a lofty valuation for a company that doesn’t expect to be profitable for at least three years.
The figures will help him craft a compelling growth narrative that drives discussions with investors and underwriters as he helps determine the timing of the San Francisco company’s roadshow and listing. Mr. Chai’s targets for revenue and rider growth and other performance indicators will set the benchmark for how Wall Street tracks the company.
“You almost have to look ahead a few years and ask, ‘What am I going to look like? And what are my metrics going to be, and will they stand the test of time?’ ” said Jackie Kelley, the Americas IPO markets leader at Ernst & Young LLC.
Mr. Chai won’t have the luxury of time to deliberate because of the uniquely competitive nature of this offering, according to finance chiefs with IPO experience. Uber’s biggest U.S. competitor Lyft. Inc. is also angling to go public, meaning both companies could be presenting to underwriters and investors almost simultaneously. Both Uber and Lyft declined to comment.
If Lyft can make its case first, the numbers it uses could influence Uber’s conversations with investors. Metrics Mr. Chai uses to describe Uber’s expected growth and business drivers might then be compared with figures issued by the company’s smaller rival.
“If you’re the first one out, you can pick your comparables,” said Stuart Miller, CFO of Workiva Inc., who helped take the professional services software company public in 2014. “If you’re the second one out, there’s only one comparable.”
Trailing Lyft to the market could also stoke doubts about whether Uber’s valuation premium over that of Lyft was large enough, he said. Lyft is expected to debut above its most recent valuation of $15.1 billion.
The $120 billion Uber valuation floated by bankers is a leap from its most recent funding round, which valued the company at $76 billion. The new figure likely includes as much as $20 billion in cash Uber and its current backers will raise from the public market, said Jay Ritter, a finance professor at the University of Florida.
“It’s still a stretch over the recent financing,” he said, “but it’s not as big a stretch.”
The disparity between the valuations of Uber and Lyft reflects Uber’s geographic reach and business diversity. Uber operates in 65 countries compared with Lyft’s two. Uber owns food-delivery service UberEats, which alone could be worth as much as $20 billion. It has stakes in transportation startups such as China’s Didi Chuxing Technology Co. and Singapore’s Grab. And the company is set to announce a new trailer-rental division.
Uber’s ultimate valuation, however, may rely less on what the company is and more on what it wants to become—and how it plans to get there. Mr. Chai will play an influential role in crafting the story of Uber’s growth engine, be it new business lines, services, or new markets.
Uber’s offering requires investment banks that have global reach and can place that amount of stock with buyers in London, Zurich, Tokyo and Hong Kong—not just across the U.S.
His team would be wise to examine the methodologies bankers use to determine the valuation, said Bill Zerella, finance chief at private self-driving technology company Luminar Technologies Inc. That could provide clues about how well bankers truly understand the company.
“What the board and the CFO need to assess is their comfort with how the bankers are approaching that,” said Mr. Zerella, who took two companies public as CFO, including Fitbit Inc. in 2015. “At the end of the day, the bankers don’t value the company, the investors do.”
Investors are expected to focus on revenue growth and the company’s profit-margin targets until the company becomes profitable.
“The danger is always for high-growth companies, that analysts without enough information will model numbers that you can’t executive on,” Mr. Zerella said.
Missing the numbers in the first few quarters could sap the credibility of the company’s management team and, ultimately, the share price.
“All of that falls on the shoulders on the CFO,” Mr. Zerella said. “So out of the gate this is a set of numbers he or she feels highly confident that they can beat.”
Write to Tatyana Shumsky at tatyana.shumsky@wsj.com