When ride-sharing pioneer Uber goes public Friday, it will be the largest public stock offering in the U.S. since 2014. But the company, its business model and how it pays its drivers remain controversial. William Brangham asks Farhad Manjoo of The New York Times and The Information's Amir Efrati about why there’s so much interest in Uber’s IPO and the viability of its business model more broadly.
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There's a lot of interest around the initial public offering of Uber, which is expected to be one of the biggest IPOs in years.
William Brangham looks at why that is, the questions around its business model, and some of the wider controversies around the company.
If Uber hits the market tomorrow, as expected, it'll be the largest public stock offering in the U.S. since 2014.
The ride-sharing giant and the rivals it inspired changed driving and commuting around the world. Its opening day market value may be well above $80 billion, which would make it bigger, for example, than the market value of GM.
The big winners? Uber's founders and early investors, who own big chunks of stock. Former CEO Travis Kalanick resigned in 2017, after reports of a corporate culture rife with sexual harassment, but he still owns 9 percent and will easily make billions.
Some veteran Uber drivers could get cash bonuses to buy shares. But the company itself, and the prospects of big paydays, remain highly controversial. There are worries about how this IPO could exacerbate already huge wealth gaps in Silicon Valley.
And many Uber drivers and those at its competitor Lyft say they don't get paid nearly enough. This week, many went on short strikes in cities around the world, protesting low wages and their status as independent contractors, rather than official employees.
While Uber performs more than 15 million passenger trips every day, the company has also grown to include mobile scooters, a long-haul trucking service, and Uber Eats, a food delivery service. But revenue growth has continued to slow, and it's still burning through a lot of cash.
Uber lost more than $3 billion last year. Its competitor Lyft went public weeks ago, but is now trading below its initial prices.
For more on Uber's initial stock offering, we turn to Farhad Manjoo. He's an opinion columnist for The New York Times. And Amir Efrati, senior reporter at The Information, who tracks this sector closely.
Gentlemen, welcome to you both.
Amir, to you first.
Why so much expectation? I mean, I haven't heard people talking about an IPO as much as they are about Uber's in a long time. Why all the fuss?
This is an important consumer brand now. It's a utility. It's part of all our lives, and so this is going to raise the profile of the company that much more.
It's also going to be an important barometer for the public market's appetite for other kind of big-money-losing companies that are going to go public in the near future. We have with got Postmates coming up, Slack coming up, WeWork. There's talk about WeWork going public as well.
And this is actually a very, very important barometer for whether investors are OK with that. So far, we have seen a lot of skittishness when it comes to the Uber IPO.
But with Uber specifically, Amir, they have got competition. It's losing a lot of money. It's had a raft of bad P.R. It has these labor issues.
Do you think any of those clouds are going to rain on tomorrow's parade?
They already have. The company did want to price its IPO valuing the company at $120 billion, or at least $100 billion. The executives who currently run the company are heavily incentivized to get that valuation to that level. They get massive, massive bonuses if the company reaches it.
But the expectations have been ratcheted way, way, way down as the uncertainty has gone up. And Uber just had basically its worst quarter ever in the first quarter of this year, lost more than a billion dollars overall.
And, yes, the questions continue to mount. And the company's saying, look, trust us. The competition that we face currently in the United States and around the world, it will abate and we will be able to make money.
It's very difficult to see that path at the moment.
Farhad Manjoo, you wrote a blistering piece in The New York Times recently, where you admitted you originally had some optimism about the idea of Uber and it as a company. But you have obviously since changed your mind.
And, in fact, you referred to this IPO as a moral stain on the culture of Silicon Valley. What is your biggest complaint?
I mean, I think the Uber idea and the idea of ride-sharing was this — it could have been this beautiful dynamic, where the company and its founders won, but also you could have had this company work in a way where drivers and cities and the way we all work could have improved.
Instead, what's happened is, the latest numbers show that, in many cities where these companies operate, traffic is up. Traffic is up in large part because of these kinds of companies. And they have also created this massive work force of drivers who get and are allowed to get paid under the minimum wage because of their — how they're classified as contractors, rather than employees.
Meanwhile, after a long history of recklessness, lawlessness, the insiders of this company, the people who founded it and who were reckless in creating that culture, they are going to get huge rewards from this IPO.
I think it's a — it's a bad model, but, unfortunately, a more common template for what Silicon Valley does in the world and its kind of effect on the world. Like, this could have been a much better idea, a more equitable idea, and one that worked for kind of more parties.
And how it ended up is winning for a few people, while a whole lot of others lose in the process.
I'm curious, though, to press you a little bit on that point, because to be more equitable — I mean, labor is one of the big issues here.
If they were paying their drivers more, wouldn't that only, again, negatively impact the company, meaning — I guess I'm trying to ask is, is the model itself potentially viable, and you simply think Uber is not doing it well, or is the business model itself not financially viable?
I mean, we will see.
I think — I think that there is a — there was a way that you could have had more expensive Uber rides, but a better incentivized and labor force, one that wasn't sort of a template for this new model of working for an app that chooses your pay and chooses your — how you work with an algorithm.
And I also think that there may be a universe where treating drivers better would have led to a better company that didn't have these kinds of brand issues and other problems.
I think that, though you point out and Amir pointed out, I mean, the kind of fundamental business model of this company, even in the way, the inequitable way, it's structured now, is still in question.
I think one of the reasons we in the Valley have been watching this company for a long time is, it's because it's been this mystery, whether it's sort of ultimately works.
And we have had other companies like this in tech. I mean, Amazon for a long time was losing money and bent on expansion. But Amazon sort of — and Uber has sort of tried to compare itself to Amazon.
But I think this is a different kind of company. It's pushing sort of new boundaries and new — and a whole new kind of business model.
Amir, what do you make of that?
Is this business model, where a company could be successful and its employees feel like they're getting a fair shake, is that viable?
It can be. It's going to require a lot of work and a lot of mergers and acquisitions potentially as well.
But I think it's very important to talk about the net benefits that Uber and Lyft and other ride-hailing companies have provided to society. They really modernized the taxi market. If you ask LGBTQ people what it was like to try to hail taxis, they will tell you a lot of horror stories. And that's certainly the case in San Francisco.
For wheelchair-bound people, this has been a huge gift. So I think the product is incredible. It works very well for the most part. And that's something we should — we should keep in mind.
Farhad is totally right. There's congestion. Drivers should be paid more. But I think it's been a net benefit so far, and drivers are choosing to drive for a reason. They're doing it for a reason. Nobody's putting a gun to their head.
I do think, though, that they need better — need to give drivers better information and potentially better pay.
All right, Amir Efrati and Farhad Manjoo, thank you both very much.