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.
- 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.
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