Uber flop threatens to leave us all poorer

The short sellers are circling the company. The big venture capitalists have taken a beating. Some of the most prestigious investment bankers have been pummelled, and an over-mighty, bullying, arrogant company, which seems to enjoy making enemies, is heading for a fall. The dismal IPO of the ride-sharing giant Uber will have generated plenty of schadenfreude in the markets, and there will be lots of people who may well be quietly pleased if its reputation never recovers.

Sure, Uber is a hard beast to love. But its fizzled IPO is the worst thing that could have happened to the equity markets. The real problem for the stock market is why so many companies have abandoned it altogether, and the way that investors are being restricted to a continually shrinking pool of not terribly successful businesses. Uber’s failure will deter other tech businesses from listing their shares – and everyone will suffer. The Uber IPO was meant to be the blockbuster financial event of the year. After the string of private funding rounds that saw it’s value rise to nine digits, the company was among the most valuable private businesses ever created with speculation its value might be as high as $120bn. As it turned out, that was a stretch. When the price was struck, its value was a relatively underwhelming $75bn. Even that turned out to be too much. By the end of its first week, it was down to $37 a share. Almost all the venture funds that had pumped money in were

already underwater on their investment. Since Uber is still running at big losses, and is likely to need a lot more investment, it may even start to find itself in serious trouble. Whether it can ever make money, find a way to placate the regulators, or turn its brand into genuine profits is being called into question. Short sellers are discovering there is more money to be made from pummelling the company than promoting it.

The trouble is, while taxi drivers and regulators might be hoping it is the beginning of its demise, the rest of us shouldn’t be. This is the latest in a series of disappointing technology floats. Uber’s ride-sharing rival Lyft is still down on its issue price. Spotify has struggled since it listed its shares. The peer-to-peer lender Funding Circle is well below its issue price. Technology may be minting fortunes for a few high-flying founders. But for ordinary investors it is becoming completely toxic.

That matters. The genuine longterm problem for the stock market is not whether a few tech companies are over or underpriced, or whether a few investment banks and VC funds are being too aggressive on pricing. It is the decline in the number of companies quoted on the main bourses. The numbers are shocking. From a peak of more than 8,000 at the start of the century, in the US the number has come down to slightly above 4,000. In this country, the total number peaked at slightly under 3,000 in 2006, but has fallen to well below 2,000. There are a number of reasons. Some companies get taken over. Some decide to go private, and a few go bust. But a certain amount of attrition is completely normal. The big reason is that far fewer bother to list in the first place, so there are not many new companies replacing those that leave. The net result? The total number keeps going down. At this rate, the last company will have delisted some time in the 2040s.

Many technology companies have grown without bothering with a public listing. They can raise the capital they need, and the founders can cash out some of their shares if they want to, without the regulatory scrutiny and short selling pressure that comes with going public. Most will look at what has happened to Uber and think: ‘We don’t need that kind of grief.’

Some of the business models could turn out to be unsustainable. But many more will be very profitable eventually.

The market needs the next round of internet floats, from Airbnb, to Wework, to others. If Uber’s flop deters them, and it is hard to believe it won’t, investors everywhere will be poorer – because they won’t be able to buy into the fast expanding businesses of the next decade.

‘The genuine long-term problem for stock market is shocking decline in numbers’