Matt Levine, Columnist

There Was No Way to Win With the Uber IPO

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“Uber Blame Game Focuses on Morgan Stanley After Shares Drop,” is the headline here, and obviously Morgan Stanley doesn’t look great after pricing Uber Technologies Inc.’s initial public offering near the low end of its marketing range and then watching the stock fall 18% in its first two days as a public company. But I want to defend Morgan Stanley a little bit. Once a company is public, its stock price is determined by the market, and no bank has that much ability to control the price. Right now it looks like the market has decided that Uber’s stock price is $37 and change, for a market capitalization of a bit more than $60 billion. That is a disappointing number for a lot of people,1 and you can debate whom to blame for that,2 but you can’t put most of the blame on Morgan Stanley. Uber is worth what it’s worth.

Morgan Stanley’s error was marketing and pricing the IPO for more than Uber is worth, and that is a serious and embarrassing error that will no doubt leave many of its investor clients angry, but honestly what else could they have done? If Morgan Stanley had had perfect foresight and told Uber “we are going to market this deal at a price range of $33 to $37, price it at $35, and see a modest pop as it trades up to $37 in the next few days,” they would have been laughed out of the room, and someone more optimistic would have led the IPO. (And Morgan Stanley would not have collected $40 million in fees.3) A $35 IPO would give Uber a (post-money) valuation of $59 billion, below its value in 2015, and less than half of what Uber’s banks actually pitched last year. (It also would have raised $1.8 billion less for Uber, which seems important given that Uber keeps losing money.) It would have been basically impossible for Morgan Stanley to convince Uber to launch the most anticipated U.S. technology IPO in years at such a defeatist valuation, and anyway it might have been self-fulfilling: If you launch the Uber IPO on the premise “the unicorn bubble is over, sorry everyone,” then who will want to buy?

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There Was No Way to Win With the Uber IPO