Mutual Funds Cut Value of Uber -- WSJ

By Rolfe Winkler and Greg Bensinger Features Dow Jones Newswires

Moves by Vanguard, three others indicate investors' doubts on ride-sharing firm

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This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 23, 2017).

Four mutual-fund companies have marked down their investments in Uber Technologies Inc. by as much as 15%, the first such price cuts that suggest these investors are souring on the ride-hailing giant following a scandal-ridden year.

Vanguard Group, Principal and Hartford Funds all marked down their shares by 15% to $41.46 a share for the quarter ended June 30, according to the fund companies' latest disclosure documents. T. Rowe Price Group Inc. cut the estimated price of its Uber shares by about 12% to $42.70 for the same period.

Uber's shares don't trade publicly, so the mutual-fund companies that hold them must estimate the shares' worth each quarter. Seven mutual-fund companies had mostly maintained a $48.77 share price since the fourth quarter of 2015, when Uber first sold its shares to investors at that price.

Fidelity Investments held its estimate of $48.77 as of June 30. The one outlier is BlackRock Inc., which wrote up the shares slightly each of the past two quarters, settling at $53.88 as of June 30.

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Uber didn't have immediate comment. The mutual-fund companies couldn't immediately be reached or didn't have immediate comment.

Uber, which is valued at about $68 billion, has struggled to rebound from a string of scandals, executive departures including the ouster of its CEO, and a blockbuster lawsuit from rival Alphabet Inc. over allegedly stolen trade secrets. The company faces a continued fallout from a probe into its culture after allegations of sexual harassment and sexism.

Uber's board, meanwhile, is trying to fill the CEO position after Travis Kalanick resigned in June under investor pressure. But the search is in flux after one of Uber's biggest investors, Benchmark Capital, sued Mr. Kalanick in an effort to oust him from the board. The legal feud began earlier this month subsequent to the mutual-fund filings' June 30 ending date, and has since spiraled into a broader battle among shareholders.

Benchmark has been negotiating for months a potential deal with tech investor SoftBank Group Corp. to sell part of its stake at a discount to Uber's last valuation, according to people familiar with the matter. Benchmark and SoftBank have declined to comment.

Amid all the controversies, Uber has sought to shore up its financials after reporting a loss of more than $3 billion last year and $708 million in the first quarter, according to people familiar with the matter. The company in July combined its money-losing Russian operations with Yandex NV's Yandex. Taxi, the more popular ride-hailing firm there. Uber is also winding down its U.S. subprime auto-leasing business after realizing losses per vehicle were $9,000 on average, 18 times what was previously believed, according to people familiar with the matter.

Uber still had about $7 billion in cash at the end of the first quarter, these people said, and its revenue totaled over $3 billion in the three-month period, up 18% from the fourth quarter.

Mutual-fund companies determine the valuations for closely held companies by a special committee that sits apart from the portfolio managers who buy and sell stocks. To value illiquid shares, such committees typically look to a company's financial information, the value of publicly traded rivals, and share prices paid by investors in previous funding rounds.

The mutual-fund firms generally don't discuss individual investments in startups, and they don't specify reasons for the price changes in their disclosure documents. The fluctuations have frustrated startup chief executives and venture capitalists, many of whom assumed the firms would hold the investments at cost after investing.

At least seven mutual-fund companies own shares in Uber, several of them first buying in during a 2014 funding around at $15.51 a share. The price has roughly tripled since then through a series of funding rounds, but Uber hasn't raised new capital since last year at the $48.77 price.

Mutual funds have historically waited until IPOs or later to invest in young companies. But in recent years, startups began staying private longer, opting to raise lucrative fundraising rounds rather than bother with financial disclosures and securities regulation. Spurred in part by rock-bottom interest rates, mutual funds in 2013 began gobbling up stakes in companies that seemed destined for a public offering.

Most companies have opted to stay private for now, and a pullback in startup funding has raised questions about overheated valuations. Some companies backed by mutual funds have recently struggled on the public markets, including social-messaging company Snap Inc., whose stock has fallen about 17% from its IPO price, and meal-kit company Blue Apron Inc., whose shares have cut in half since the public offering. Other companies have performed strongly, including Redfin Inc., with a 68% jump in share price since their debut.

Write to Rolfe Winkler at rolfe.winkler@wsj.com and Greg Bensinger at greg.bensinger@wsj.com

(END) Dow Jones Newswires

August 23, 2017 02:47 ET (06:47 GMT)