Flood of trades sends Uber to record low as insiders allowed to sell

© Reuters. Uber's logo is displayed on a mobile phone in London

By Noel Randewich and Supantha Mukherjee

SAN FRANCISCO (Reuters) - Uber Technologies Inc's (N:UBER) stock dropped 3% to a record low in its busiest trading session since the ride-hailing company's Wall Street debut as employees and early investors on Wednesday became free to sell their shares.

Over 110 million shares, worth around $3 billion, had been traded at mid-day, second only to the 186 million shares exchanged in Uber's first session on the stock market on May 10.

The majority of Uber's 1.7 billion outstanding shares were restricted from trading until Wednesday, a so-called lockup period intended to avoid an avalanche of sales for the newly public company that could have undermined the stock price.

The end of Uber's lockup comes at a time of growing reluctance on Wall Street to make risky bets on a host of money-losing heavyweight startups that held highly promoted public listings this year.

With Wednesday's loss, Uber has fallen more than 40% since its IPO as the company, which lost $1.2 billion in the September-quarter, struggles to win investor confidence.

In its IPO filing, Uber had said about 76% of its shares held by insiders, venture capitalists and other investors faced lockup.

Uber's stock has tumbled 14% since Monday, when the San Francisco company reported an increased quarterly loss as it outspent rivals on discounts to lure customers and invested heavily in loss-making new business ventures.

"Some of the sell-off over the last few days has been attributed to the fear of additional liquidity coming into the market as a result of the lockup expiration today, and people were trying to get ahead of that," said Matt Novak, managing partner at All Blue Capital, an Uber investor.

Early investors and employees may be reluctant to sell their shares since the stock has fallen so far.

BEATING

SoftBank Group Corp (T:9984), which has invested billions in Uber to become its largest investor, in 2017 bought preferred stock at $48.77 per share and common shares at $32.97 apiece from existing shareholders, including co-founder Travis Kalanick. Uber's common stock last traded at $27.

The Japanese firm, which took a beating on its investment in office-sharing startup WeWork, earlier on Wednesday reported its first quarterly loss in 14 years, hurt by an $8.9 billion hit at its giant Vision Fund.

Uber also counts Benchmark Capital, Saudi Arabia's Public Investment Fund, Alphabet (O:GOOGL) and Goldman Sachs (NYSE:GS) among its top investors.

In September, WeWork scuttled its much-anticipated market debut due to skepticism about its business model, corporate governance and burgeoning losses. That development led to increased reluctance among many investors to own money-losing companies trading at high multiples.

Unprofitable U.S. companies holding IPOs this year have had a median stock return of 0%, compared to a median increase of 3% for profitable companies that held IPOs, according to a Reuters analysis. The S&P 500 is up 22% in 2019 after closing at a record high on Monday.

Longbow Asset Management in recent days has started to buy shares of Uber, its smaller rival Lyft (O:LYFT), social media website Pinterest (N:PINS) and online pet store Chewy (N:CHWY), said Jake Dollarhide, chief executive of the investment advisory firm in Tulsa, Oklahoma.

Lyft has fallen 41% from its March IPO and Pinterest is down 44% from its August high following its April listing. Chewy surged 70% in three sessions after its debut, but since then has steadily declined and now remains up just 6% from its IPO price.

"I wasn't interested in a lot of these companies at their IPO prices, but now that they're down 30 or 40 percent, they're interesting to me," Dollarhide said. "I'm in the business of buying when things look bleak."