Uber's wordy risk factors mix tedium and terror

By Robert Cyran

(The author is a Breakingviews columnist.)

NEW YORK, April 16 ( Breakingviews) - The "risk factors" section of a prospectus is the first thing prospective investors in an initial public offering should read. Uber Technologies' warnings to buyers of its shares are a wordy mix of tedium and terror.

American society's litigiousness partly explains the sprawl. Disclosure doesn't absolve companies of liability, but it does provide a bit of legal armor. There's also a ratchet effect over time. If one company says something new, such as that earthquakes may harm it, other firms - or their lawyers - tend to play safe by adding the risk to their own list. Natural disasters, U.S. government regulation and class-action lawsuits are all listed as potential problems in Uber's prospectus. None made an appearance in Microsoft's.

The growing complexity of a maturing technology sector also plays a part. Sexual harassment, company culture, accounting compliance and social media all routinely make appearances today. Uber, for example, says its brand is vulnerable to campaigns such as the #deleteUber effort during the messy tail end of former boss Travis Kalanick's tenure. Meanwhile, startups enjoy cheap web services from the likes of Amazon , but they must admit there's a chance of being stuck with a single provider or getting hacked.

Yet part of the risk-factor spread is simply that dicier firms are floating. Only 16 percent of the tech firms that went public last year were profitable, according to Jay Ritter, a University of Florida professor. That's the lowest percentage since the dot-com boom 20 years ago. Levi Strauss , the profitable jeans maker that just returned to public markets, was retro with its risk factors, too - its screed clocked in at less than half the length of money-losing Lyft's or Uber's. The quantity of tech disclosures is worrying in itself, but what they reveal about the underlying businesses is what investors should find alarming.

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- Ride-hailing app Uber Technologies filed a draft prospectus for an initial public offering with the U.S. Securities and Exchange Commission on April 11. The company is seeking a valuation of between $90 billion and $100 billion, reported on April 10. It was valued at $76 billion in its last fundraising in the private market in 2018.

- The "risk factors" section of Uber's prospectus is 48 pages long.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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