“Uber IPO Is Oversubscribed by Day Two of Roadshow,” it says here, but I would say that Uber Technologies Inc.’s initial public offering was oversubscribed by 2016 at the latest. Like if you’d given me 24 hours, at any time in the last three years, to line up $8 or $9 billion of orders for public Uber stock, I could have done it. You wouldn’t have to give me a prospectus or audited financial statements or talking points for the sales pitch or even the names and phone numbers of big portfolio managers, I would just call the publicly available customer-support lines at Fidelity and Capital and be like “hey Uber’s going public, you guys want a couple of yards?” and they’d be like “oh sure” and I’d be done by lunchtime. This is easy, easy stuff. I mean, at some price, anyway.
Imagine if Morgan Stanley was mandated to lead Uber’s IPO, and they went out on the road and pitched investors, and the investors were all like “Uber? Never heard of them, pass.” I think it’d be the most embarrassing event in the history of capital-markets banking. Morgan Stanley raised $475 million for Uber privately, three years ago, from retail-ish investors, without financial statements. Uber sold $9 billion of stock, a bigger deal than the IPO — in one private deal last year. Of course the IPO was oversubscribed immediately.
Now, oversubscription is a pretty low bar. The fact that there is billions of dollars’ worth of demand for Uber stock is very very obvious; the question is at what price:
Demand for the share sale is currently focused on the lower end of Uber’s targeted share price range, though that could still shift as talks with investors continue, the people said. That would put the amount that would be raised in the IPO closer to $7.9 billion. …
The world’s biggest ride-hailing company is offering 180 million shares at $44 to $50 apiece, according to a regulatory filing last week. At the top of the range, the listing would value Uber at almost $84 billion, based on the number of shares outstanding after the offering as detailed in the filing.
If Uber goes public at the low end of the range then that will be about an $80 billion fully diluted valuation, not much above its $72 billion private valuation last year. But this doesn’t tell you much: It’s early in the roadshow, and the bankers’ job from here on out is to try to push the price up. Including, obviously, by leaking on day two that the deal is oversubscribed, and then going back to investors to say “this deal is very popular and you’re not going to get anything unless you are willing to raise your price.”
Online pet-supply retailer Chewy Inc. filed for its initial public offering on Monday, and it is not as high-profile as Uber or the other unicorns stampeding to go public this year, but in some ways it feels, even more than them, like the 2019iest of IPOs.
First of all, as is de rigueur in postmodern IPOs, Chewy is a fast-growing but money-losing company. “Chewy is comically unprofitable, even by startupy standards,” tweeted the Wall Street Journal’s Liz Hoffman, noting that it lost $268 million on sales of $3.5 billion last year. “Also sure, Uber is unprofitable but ride-sharing and self-driving cars are new and expensive things. Chewy … sells dog toys online?”
We have talked a lot about the strange startup economy in which venture capitalists subsidize consumers by pouring money into startups that sell their product below cost in the hopes of building global dominance in some newly invented, highly scalable, winner-take-all business. (“Blitzscaling,” it’s sometimes called.) Does selling dog food and prescriptions fit that category? I don’t know. It doesn’t seem all that new, or winner-take-all. But maybe everything fits that category now; maybe losing money to achieve global monopoly scale is the only business strategy left.
Second, Chewy will have dual-class stock: Public shareholders who buy stock in the IPO will get Class A shares with one vote each, but a majority of its votes will be held by a controlling shareholder who has Class B shares with 10 votes each. This is quite common these days; pretty much every buzzy tech startup now goes public with dual-class stock so that its charismatic founder(s) can keep control of the company. But Chewy isn’t controlled by its charismatic founder, or by an adorable and financially savvy dog for that matter. It’s controlled by PetSmart Inc., another pet-supply retailer that acquired it in 2017. PetSmart is in turn controlled by Argos Holdings LP (stellar classical pet reference!), which in turn is controlled by a consortium of private equity firms.
Dual-class stock is very much a thing these days — controversial but widespread — because lots of startups run by visionary perfectionist founders are going public, and those founders want to maintain control, and investors grumble about it but at some level think that it is actually value-enhancing to surrender control to the founder whose vision you believe in. That’s sort of a situation-specific story that happens to be repeated over and over again with Facebook and Snap and Lyft and so on. But I guess it’s possible that dual-class stock could be disconnected from that story and just become a standard feature of IPOs. If you’re a private equity firm or a corporate parent or whatever, you can just sell a majority stake in an IPO but keep control with super-voting stock. If investors will buy it, why not do it?
Finally, I don’t want to be rude here, but we did have a previous giant internet boom, and it was followed by a giant internet bust, and the very most famous symbol of that boom and that bust, the one that everyone still refers to all the time to capture the insanity of that era, the one that“has become synonymous with the dot.com bust,” was an online pet-supply retailer. “I can’t believe people bought the IPO of a money-losing online pet food company” is a thing that people really went around saying for like a decade within living memory. Anyway….