Dara Khosrowshahi could have gotten a huge payday — totaling more than $100 million, according to a source — if Uber's IPO valuation hit $120 billion after its IPO and stayed at that level for 90 consecutive days.
Even though Uber's stock price is currently trading below its IPO price and the company is nowhere close to hitting that lofty figure — the market cap is currently at about $70 billion — he still has a chance to get an enormous grant of stock if he hits the 90-day, $120 billion valuation over the next several years, according to a disclosure in Uber's S-1 documents.
The Uber CEO will also get the payout for selling the company for $120 billion, the disclosure says.
Read: Here's who's getting rich on Uber's massive IPO
Although it had been much reported that Khosrowshahi was seeking the $120 billion valuation, Uber pretty much publicly confirmed the figure in the S-1's footnotes about Khosrowshahi's compensation and financial incentives.
A cache of stock was set aside on September, 2018, about a year after he joined the company as CEO, and the grant expires in 2024.
The grant includes 1.75 million in stock options that he can buy for $33.65 a share that vest over five years, should the company's market capitalization reach $120 billion for 90 consecutive days, the company said.
Plus the CEO will be instantly vested, 100%, for another 185,735 shares as soon as the company hits the 90-day $120 billion valuation, the S1 says. This is in addition to another batch of performance-based grants.
All told, Uber pays Khosrowshahi $1 million a year in salary, $2 million a year in bonus compensation, and in 2018, he earned various packages of grants and stock valued at $40.1 million. Uber also covers a number of his expenses such as help with his tax bill ($98,357 in 2018 for that).
We don't know how much money Khosrowshahi stands to gain from buying 1.75 million shares at that $33.65 strike price, but according to our back-of-envelop math, Uber's share price would have to rise to about $71 to hit the $120 billion valuation, making that cache worth $124 million and netting him a profit of $65.4 million. And he'd been looking at about $78 million from those additional 185,735 shares.
All told, based on a $71 share price, it was a bonus package worth $137.5 million. That's a lot of bonus money under any circumstances, even if he did, reportedly, leave $185 million worth of potential stock options when he left his former job, the CEO of Expedia.
Khosrowshahi currently holds 200,000 shares.
Uber has set aside big stock grants for most of the company's named officers that rely on hitting that $120 billion valuation.
The question is: how does Khosrowshahi convince investors that Uber is worth $120 billion? Especially when looking at the financials: $11.3 billion in revenue in 2018, a $3 billion loss on operations (although it logged $997 million in net income, mostly from $3.2 billion worth of divestitures, it said, such as selling its Southeast Asia business to Grab). On top of that, Uber has $6.9 billion in long-term debt.
For its IPO, it tried to convince Wall Street that it still has an enormous amount of growth ahead of it. That pitch rested on a couple of pillars:
1) The rideshare business is the top one, in which Uber is already the dominant player. Uber is telling investors that transportation is a $3.0 trillion market opportunity in its prospectus.
2) Its meal delivery business, Uber Eats, which Uber identifies as a $795 billion opportunity for Uber.
3) The Uber Freight business, in which Uber's software matches carriers with shippers — a $700 billion market opportunity, Uber says.
And last, it touts its investment in "advanced technologies, including autonomous vehicle technologies," it says. Uber describes a world where its fleet of robot taxis work arm-in-arm with human Uber drivers. It has not put a market value on self-driving cars, but it did just cordon that business off into a separate unit and sold a chunk to investors for $1 billion that valued the unit at $7.5 billion total.
Even that valuation isn't all that high. For comparison, GM's Cruise (backed by Honda) was valued at about $15 billion in 2018, according to Pitchbook, while one Wall Street analysts pegged Google spinoff Waymo at roughly $75 billion in 2018.
If, over the next few quarters, Khosrowshahi can show Uber growing in these areas, while slowing losses and having some plan to profitability, investors may lose some of the skepticism — and he'll be rewarded handsomely.
