DUBLIN — Most tech companies have used IPOs to reward their workers. Employees from the senior level up at companies like Snap, Facebook, and others were given juicy stock options back in the early days, and those options turned into generous rewards when those companies listed. Uber and Lyft are planning to do something a little more revolutionary by giving their lowest-level workers – their drivers – a piece of the IPO action. Apparently, some of the most dedicated long-term Uber and Lyft drivers will be able to get into the IPO at the listing price and will get cash awards to enable them to buy the stock. It’s a different take on the classic tech company reward structure, and one with a lot to commend it. In fact, this tactic reminds me of some of the best BEE deals in South Africa, that rewarded employees in a way that aligned their interests with those of the company for the long term. Giving workers a stake in the business they work at can be a smart way to encourage productivity and to let the people who contribute most to the company’s success share in the rewards (and, perhaps, the pain in a downturn). The good news is that SA Uber drivers will be able to participate. The bad news is that they may only get the cash payment and may not have the option to buy shares. – Felicity Duncan
Some Uber, Lyft Drivers to Get Stock in IPOs
By Maureen Farrell
(The Wall Street Journal) – Ride-hailing companies Uber Technologies Inc. and Lyft Inc. are planning to give some drivers money to buy stock in their initial public offerings, a rare move that would grant them access to two of the most hotly anticipated IPOs ever.
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Both Uber and Lyft’s IPOs will include programs that would give some of their most-active or longest-serving drivers a cash award with an option to put it toward stock in the IPOs, according to people familiar with the matter. It is typically hard for an ordinary investor to buy a company’s stock at its IPO price before it begins trading on an exchange, so this move would give drivers access they likely wouldn’t have had otherwise.
Uber is working out the details of a program expected to be valued in the hundreds of millions of dollars that would give a significant portion of its 3m active drivers and couriers globally either a cash bonus or the option to use that cash to purchase shares at the IPO price, people familiar with the matter said. These awards will be tiered based on a sliding scale related to the driver’s length of service and number of trips or deliveries, these people said.
In markets outside the US, Uber is aware that drivers may not be able to purchase shares because of securities laws, but those who qualify for the cash award would still receive it.
Uber has been working on ways to give drivers shares of the company since 2016, but had encountered a roadblock because of securities laws that make it challenging to give private shares to independent contractors. Uber drivers aren’t full-time employees.
Instead, Uber opted for the path it is taking. Morgan Stanley, which is leading Uber’s IPO, will manage the program to facilitate the purchase of stock at the IPO price, the people familiar with the matter said.
Lyft, meanwhile, intends to give its drivers who have logged at least 10,000 rides on the platform $1,000 that can be kept or used to buy the company’s IPO shares, said people familiar with the plan. Lyft expects only a minority of its drivers will be eligible, these people said, but the plan is designed to recognize the most significant drivers who have helped build the platform.
A Lyft driver who has logged 20,000 rides would be eligible for $10,000 in cash or that equivalent amount of stock, the people said.
For eligible drivers, getting Uber or Lyft shares at the IPO price could be a big win. The IPOs are expected to be two of the hottest in what could be one of the biggest years for IPOs by dollars raised on record. Shares of these types of IPOs are coveted by investors because they are generally expected to rise significantly when they start trading – the so-called first-day pop. Typically, most IPO shares are allocated to large funds that are expected to hold the stock for a longer term. Individual investors often vie for a small portion of the shares sold into the IPO.
Still, not all sought-after IPOs amount to big, quick wins. Shares of Facebook Inc., for example, stumbled in the early months of trading despite a huge appetite for them at the time of the IPO. The stock now trades at more than four times its 2012 IPO price.
Uber and Lyft have racked up huge losses as they compete for drivers and riders. With their IPOs, the battle for global investors will become part of the rivalry too.
The move would be the latest from the ride-hailing services to appease its drivers. For example, Uber added tipping in 2017 as an option for passengers; Lyft has allowed tipping since its early days.
Drivers for the services operate as contractors, not employees of the companies, a position that has drawn the ire of some and has in the past been the catalyst of lawsuits against both companies by their drivers.
Lyft’s plans for the award are expected to be unveiled Friday, when the company makes its IPO paperwork public, some of the people familiar with the matter said. Uber’s paperwork will be unveiled later as it isn’t expected to go public until at least May or June, people familiar with the IPO process said.
The transition to becoming publicly traded is likely to reshape both companies and the ride-hailing market they pioneered in the US, bringing greater pressure from shareholders to be profitable and requiring more transparency. The two companies have been racing to go public, but Lyft will likely arrive first and be the initial major test of how public investors value the ride-hailing industry.
Uber, founded in 2009, is a sprawling business now operating in about 64 countries. It has built up significant divisions in addition to ride-sharing, like prepared-food delivery unit Uber Eats and a trucking business called Uber Freight. Uber has 68.5% of the US ride-hailing market, according to Second Measure, which tracks credit-card spending data. Last year, it posted a loss of about $3.3bn, excluding a one-time gain from the sale of unprofitable businesses in Russia and Southeast Asia.
Lyft, which operates in the US and Canada, is smaller than Uber and largely derives its revenue from ride hailing. It has 28.9% of the market, according to Second Measure. Lyft posted a loss of $254m for the third quarter, the latest financials available. It will disclose its full-year results in the Friday filing, people familiar with the matter said.
Write to Maureen Farrell at [email protected]
