Great Expectations

Uber listed on the New York Stock Exchange last Friday.

There was a lot of excitement about one of the biggest IPOs of the year, and Uber surely didn’t disappoint.

Uber Technologies Inc [NYSE: UBER] opened at US$42 per share and went on to skyrocket, exceeding all expectations.

Uber’s bubbling upward momentum took the whole market higher with it. Shares were soaring at Friday’s market close.

There is no…ahem…stopping this bull market…

…I’m jesting of course.

Uber did debut on the New York Stock Exchange last Friday and it was one of the most expected IPOs of the year. There were massive expectations for it.

But it didn’t do too well on its first day.

Uber lost 7.62% on its first day. Shares are now trading at US$41.57.

Gizmodo called it the ‘worst performing IPO in US stock market history’.

Uber saw one of the biggest first day losses in terms of money

Uber went into the IPO with a US$76.46 billion valuation, much lower than the US$90–120 billion some were initially valuing it at. On its first day, Uber’s market cap dropped to $69.71 billion.

It’s competitor Lyft has also been trailing lower.

Lyft [NASDAQ: LYFT] is trading close to 30% below its IPO price. Uber and Lyft are two of the largest ridesharing companies in the world.

But it shows you how quickly sentiment can change.

Uber has an interesting business. It operates in over 700 cities and has diversified from ride sharing into other businesses like Uber Eats and Uber Freights.

They are also spending a lot of money on technology, like self-driving cars.

There is no question that Uber has a great story. The problem is that it has no profits.

True, timing has played a part on Uber’s disappointing results.

Uber has gone public as its drivers staged a massive global strike to ask for a higher share on commissions.

And trade war fears are making a comeback. China and the US are battling each other on tariffs once again.

Erm…weren’t we past that?

Yep, things were looking up. US and China seemed to be getting along, the Fed had stopped raising rates, and markets had had a great start of the year.

Now trade talks are tanking, with higher tariffs on their way.

Here in Australia, expectations for economic growth are souring along with property.

As Bloomberg reports:

Sydney houses are hitting the market at the slowest pace since 2004 and Melbourne is also seeing a dramatic slide in sellers, adding to concerns that Australia’s housing slump will sap economic growth and force the central bank to cut interest rates.

‘New advertisements for Sydney homes dropped 21.5% in the three months to April from a year earlier on the Domain real-estate website, according to a report on the site. Melbourne listings tumbled 23.3% and the number of new homes for sale there is at the lowest in almost a decade, Domain data show.

‘The Reserve Bank of Australia on Friday slashed its growth forecasts as the crumbling housing market prompts householders to spend less. Economists and fixed-income traders expect the central bank will cut interest rates twice within a year, after it decided against easing policy on Tuesday as it waits to see whether the persistent hiring strength of the past two years is maintained.

‘“Growth in the Australian economy has slowed and inflation remains low,” the RBA said in its quarterly statement on monetary policy. “Subdued growth in household income and the adjustment in the housing market are affecting consumer spending and residential construction.”

‘Domain data show the overall stock of houses listed in Australia’s two largest cities has risen over the past year as the time taken to sell homes increases.

The housing downturn could affect consumer spending and employment. As we have mentioned before, the thing to watch here is the unemployment rate.

Expectations are falling short

Expectations are falling short and uncertainty is starting to creep in.

It shows you how consumer and investor sentiment can change very quickly.

The end of this bull market could be close.

Best,

Selva Freigedo,
Editor, Markets & Money


Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find, in her opinion, the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.


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