Tag: IPO

  • The Dilemmas About Aramco Investing Are Showing Up

    The Dilemmas About Aramco Investing Are Showing Up

    The Dilemmas About Aramco Investing Are Showing UpInvestors’ demand drove Saudi Aramco market value to $2 trillion on the first 2 days of trade in Riyadh

    But the dilemmas about Aramco investing rose. Yes, Saudi Aramco (SE:2222) reached the $2 trillion target. Saudi leader Crown Prince Mohammed bin Salman had a wish, and it became a truth on Thursday, December 12. Aramco shares have been rising for the second day to make Saudi Prince happy. Finally, this guy has a chance to show how big visionary he is. 

    Aramco’s initial public offering (IPO) is the cornerstone of his vision to provide Saudi’s economy the independence from oil. The money ($25.6 billion) collected by selling the shares of Aramco will be used for developing some other fields of the national economy. That is how the plan was presented in public. So far, so good.
    This is a tremendous opportunity for the Kingdom. Oil has long been the main export product for Saudi Arabia and Aramco is the biggest oil company in the world.

    The end of the fairy tale?

    The bubble around Aramco shares grows. Even before its IPO. It was represented as a great investment, a great opportunity for investors all over the world. But just be careful. If some sharks are buying those shares it doesn’t mean that everyone should do the same. Maybe Saudis have to do that but you don’t. Saudi Aramco is a state-owned company and some Saudis, according to media reports, are taking loans to buy the shares.

    Saudi Aramco’s IPO gives opportunities for Saudi citizens. Now, they can have a part of this Kingdom’s crown jewel. And everyone is excited, full of optimism and enthusiasm. But, where is the limit of it?

    Must be somewhere. 

    The share price is high in December, as we can see and it seems it will rise more. But what if the stock is overvalued? What if it is a bubble? It will explode and the prices will eventually fall.

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    Why the dilemmas about Aramco investing arise?

    For several reasons.

    Saudi Aramco has become the most valuable listed company in history. This oil producer gained a market value of $1.9tn on its first day of trade.
    Shares were climbing almost $200bn above the $1.7tn valuation established before its market appearance on Riyadh’s stock exchange.
    This the biggest “provider” of the climate crisis had been valued at more than Apple and Facebook together. Also, double more than Amazon and Alphabet. 

    On the second trading day, it hit the $2 trillion target.

    But investors should be worried because of the company’s relationship with a state. And it isn’t SOME state. Saudi Arabia is well known as related to human rights abuses and with some dark things too. Have you ever asked yourselves why the main support for the company comes from the Saudis and the Middle East?
    But the main concern comes from investment index providers such as S&P Dow Jones, MSCI, or FTSE.
    They all said they will include Aramco shares into their indices. What are the consequences? Well, the investors from all around the world, pension funds and other funds will be forced to buy these Aramco shares.
    The dilemmas about Aramco investing came directly from the state of Saudi Arabia. 

    Saudi officials said that the government will sell more shares after the IPO. If the Saudi government does so, it will overwhelm the market with additional shares. And the bubble burst is coming! 

    The sale of more shares by the government could easily cause the price of Aramco shares to decrease notably. 

     

    Bottom line

    We don’t want to say that you should or shouldn’t invest in Saudi Aramco. We just want to say that you should avoid Aramco-mania. Stock investing is risky. In the markets, nothing goes up permanently. So, keep this in mind. And invest smartly and carefully.

  • May the IPO Be With You

    May the IPO Be With You

    3 min read

    Uber lyft strike over working conditionby Gorica Gligorijevic

    On the eve of expected IPO, drivers of both Uber and their competitor Lyft are planning to stage a strike across the USA on May 8.

    With the upcoming IPO for Uber, a ride-hailing company, 2019 season of unicorn and decacorn tech IPOs is scheduled to continue. Analysts are projecting a valuation of Uber to reach between $91B and $120B, very possibly reaching rarified air heights of valuation above $100B.

    By breaking this barrier Uber would become only second hectacorn after the Ant Financial. Such valuation would bring a windfall for both the shareholders and the company which is often castigated for burning its cash reserves.

    But not everything is rosy in the Uber-land.

    For the May 8, Uber and Lyft drivers in the USA are planning to stage a strike against the working conditions and the company’s policies. Drivers in Chicago, Los Angeles, New York, and San Francisco are planning to log off during the morning rush, between 7 A.M. and 9 A.M. local time.

    There are indications that they will be joined by their colleges across the country, but also in London. In cities which are hosts to Uber’s offices, the plan is to also stage a protest in front of them, and such events are expected both in the USA as also in other countries where Uber is operating.

    Organizers and supporting organizations of this protest, such as Rideshare Drivers United – Los Angeles and the New York Taxi Workers Alliance (NYTWA), are demanding safer and more secure work environment and that the company ensures that its drivers actually can make a living off their income.

    On May 3 NYTWA has published a post on their web site has announced their plan to support the strike.

    Their members, among which are not just cab but also Uber, Lyft and Juno drivers; have decided by vote to support their colleges from Uber around the world. “With the IPO, Uber's corporate owners are set to make billions, all while drivers are left in poverty and to go bankrupt”, states the post.

    The organizers have listed as one of the demands that the driver’s commission is guaranteed and set in the 80-85% range.

    While drivers in New York have fought and won a guaranteed equivalent of $17.22 because the drivers themselves must pay the payroll tax it accounts for $15 hourly rate, various fees imposed on them by Uber eat almost half of their incomes.

    One of the biggest complaints of drivers is work insecurity.

    uber and lyft strike

    Particularly telling are the cases of drivers who were fired with no explanation whatsoever, among them some have reasons to suspect that it was a retaliation for the participation in previous protests against Uber’s corporate policies. And with the company flooding streets with new drivers work is less and less certain as the competition for fares grows.

    But many voices are concerned with the other side of this situation. With an increased number of novice drivers, who are not yet familiar with the Uber driver’s app, quality of services is sharply plummeting. And with company’s very lax background check of drivers, it is more than reasonable to presume that the safety of customers is also affected, while Uber didn’t have a glowing reputation for safety, to begin with.

    As adding fuel to this flame comes the content of Uber’s S-1 filing and the immediate reaction from the Wall Street analysts.

    “We have incurred significant losses since inception. We incurred operating losses of $4.0 billion and $3.0 billion in the years ended December 31, 2017, and 2018, and as of December 31, 2018, we had an accumulated deficit of $7.9 billion”, is stated in the filling.

    Doom isn’t the worst scenario

    Though these are not the worst of the doom and gloom Uber is placing in their documents, they are obviously hoping to emulate the Lyft, who had a decent IPO featuring the similar sentiment in their own filling. The trump card of Uber’s IPO is two numbers which show that they are both a huge company and a very small start-up. They are boasting that their drivers have completed more than 10 billion of rides in 63 countries during 2018, but they make just a measly 2% of public commutes over the same period.

    But this double scale of size may prove to be irrelevant as the filing states that the company will need to generate and sustain increased revenues and decrease proportional expenses “and even if we do, we may not be able to maintain or increase profitability.”

    The Uber is intending to continue, and actually increase the level of, investments into driverless cars, e-bikes, and e-scooter. 

    In essence Uber plans to cannibalize own business model in an effort to achieve profitability. In other words, Uber which was promising to disrupt the world of daily commutes is now disrupting its own business outlook.

    Wall Street has already voiced its opinion.

    Uber must decrease its expenses (read: cut down drivers’ commissions) to achieve profitability. Though the company in its early days have attracted many part-time drivers who saw it as an opportunity for extra income through a side gig, for the majority of current drivers is the only source of income. Besides that, they are also working extremely long hours in a very uncertain environment, where they literally do not know whether they will have a job the next day.

    And psychological professionals cite these stressors as primary factors behind suicides of 8 Uber drivers in the USA over the past year.

    Many public figures and activist investors were speaking for years against the business model of Uber. But maybe the worst condemnation of it comes from company’s own filing on the eve of their IPO: “Our workplace culture and forward-leaning approach created operational, compliance, and cultural challenges and our effort to address those challenges may not be successful… a failure to rehabilitate our brand and reputation will cause our business to suffer.”

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