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Why Do Public Companies Raise Money?

A simple question with a simple answer: Public companies raise money often because it is an easier source to raise capital through. Many companies (especially start-ups or unicorn companies) that go public typically need more money and funding to implement new ideas and continue building out their businesses post-IPO.

Case Study – Uber

Uber, registered under NYSE: UBER, went public with an IPO in May 2019. Before the company’s initial public offering, the company had raised over $20 billion in fundraising. Since going public, Uber received another round of funding for an undisclosed amount. In the past, Uber has had investors ranging from PayPal to Morgan Stanley. In a COVID world, ridesharing has become a sort of a moot point—not as many people are calling Uber’s (and other ridesharing providers) because of the uncertainty that revolves around sharing a confined space with a stranger.

It’s clear that Uber has been struggling during these COVID times as the company laid-off employees due to the virus. In Q1 of this year, the company lost over $3.5B in revenue and saw a decrease in rideshare bookings. However, in an effort to bounce back from the losses, Uber ramped up its Uber Eats offering to provide people with an easy way to order food to-go from restaurants. This could be part of the reason why Uber raised additional funds after its IPO (most recently in January 2020): to continue growing its food delivery service.

The company announced a few weeks ago that it would be acquiring Postmates—another competitor food delivery service—for $2.65B.

When public companies are looking to expand their growth and acquire other companies to further increase their presence, more money needs to be raised. And given Uber’s decline in ridesharing, raising money was a necessary step in order for the other sector of the company to keep growing and gaining revenue.

What to Look For to Make Money

First things first—why is the company raising money? In the case of Uber, money is being raised because the company lost significant dollars. Like most things, do your research. Sure, raising money shows that investors are interested in a company, but to what extent? To make money, you want to make sure that the company you’re interested in investing in isn’t losing more than they’re raising.

For more insight and reports for publicly traded companies, check out Dear Retail.

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