Uber’s IPO is fast approaching and there is a lot of hype behind.
However, given the recent struggles we’ve seen from Lyft, investors might be a little hesitant in buying up shares of Uber right out of the gate. While Lyft had a strong start with its IPO and on day one closed at over $78, the stock is nowhere near those heights now, losing about a quarter of its value since then.
The biggest worry I’d have about the upcoming Uber IPO is whether the stock is already overpriced. Lyft’s market cap is $17 billion, well below the valuation that Uber could potentially reach, with estimates coming in at over $90 billion.
And while Uber might be the more popular option for users, whether it’s worth five times Lyft’s current value is a big question mark and would make me hesitant to buy it at such an inflated value. Ultimately, Uber lacks the moat necessary to justify such a high valuation and that’s why I don’t see it as being a good long-term buy on day one.
To help put into context just how high the valuation is, consider that at over $90 billion, Uber would be larger than Morgan Stanley (NYSE:MS). It would also rival Starbucks (NASDAQ:SBUX) and General Electric (NYSE:GE) in value. Those are all established organizations with a strong track record behind them. Uber, meanwhile, still faces a lot of uncertainty and I’m not convinced the business model is strong enough to handle larger competitors.
On day one, I’m sure we’ll see Uber pop, but I wouldn’t expect the stock to be able to stay at that high of a valuation for long.
