The "this valuation is crazy" and "this proves a bubble" comments are filling up my Twitter feed and HN, but I couldn't disagree more. Call me crazy, but I think this valuation is completely fair. For a few reasons:
Uber has serious revenue. They do more trips in San Francisco than taxis do. This isn't a pie-in-the-sky "there will be money there, I'm sure of it" thing. They bring in billions, and they're starting to win entire markets.
The on-demand-transportation market is enormous. I can literally see a future in which the majority of the taxi industry is now called "Uber." That's a big freaking deal.
What Uber can do doesn't even stop at "transportation." How many "Uber for X" startups have you seen? Uber could be all of them, and do all of that. They've nailed the difficult math behind the logistics issues - basically a scaled version of the traveling salesman problem. They do real math, and solve real problems.
I imagine a world where you can get anything on demand in minutes, and in that scenario Uber is the taxi, UPS, FedEx, etc. at the same time.
In a few years when self-driving cars become the norm (crossing my fingers), Uber will be even more valuable. I may be dreaming, but empty cars you can grab any time and take anywhere or request anything... it really is a beautiful thing.
They will be successful in San Francisco, of that I have no doubt. From what I understand the taxi market there is horribly broken, Uber saw a gap in the market and leapt at it.
The mistake, IMO, is assuming that they will be able to replicate that in other cities. In NYC you can get a taxi 90% of the time by holding your hand up in a street corner. At peak times that's more difficult, but that's also when Uber has surge pricing. They will hold their own and take over the premium market from various non-descript livery car companies - but only the premium market. They won't take over the taxi market as a whole. Much the same applies to London.
Also, much of their current success is based upon how heavily regulated and backwards taxi authorities are. For example, in NYC taxi drivers are not able to use phones or navigation aids, and hailing by smartphone is in its infancy. But that won't be the case forever.
So yes, they deserve a good valuation. But, to me, there are still a lot of questions about whether they will expand to fit this valuation.
You can get a cab in Manhattan, and maybe Brooklyn, 90% of the time. But, if you head to the Bronx (where I live), it's considerably more difficult. I can't really speak for Queens or Staten Island.
Up until the beginning of the year, 90% of the time you'll be hailing a gypsy cab. The only time you'd get a yellow when leaving the BX was at shift change which is around 5pm/5am for a lot of them. Not that there's anything wrong with a gypsy cab, but you're not supposed to hail them, which ties into a lot of the problems Uber appears to be facing in NYC.
I will say a lot has changed with the introduction of the Boro cabs (green cabs). I don't remember exactly when they were introduced, but getting a cab is considerably easier now.
So, while I agree with what you are saying, I think it's a little Manhattan-centric.
Up until the beginning of the year, 90% of the time you'll be hailing a gypsy cab. [...] I will say a lot has changed with the introduction of the Boro cabs (green cabs).
Agreed - and that was sort of my point about Uber taking advantage of regulation, though I didn't phrase it well. The artificial scarcity of taxi medallions meant that demand outstripped supply outside of Manhattan. Now they're finally, slowly, fixing that.
The thing is that uber is priced such that it is only attractive to people who live where it's not needed, i.e. Manhattan below 96th street, parts of western Brooklyn, and one or two hot spots elsewhere.
Even cabs (green and yellow use the same fare structure) are priced way out of line with what the gypsy cabs were negotiating in many parts of the outer boros. UberX is another 30+% again on top of that.
It looks to me like uber's biggest market in NYC is not people who live in outer boros and would otherwise have hailed a green or gypsy cab but people who would otherwise have taken a pre-arranged black car because hailing a cab is for the proles. That market isn't nothing, but it's far from the whole thing.
The average wait time in NYC is between 5 and 9 minutes depending on time of day. But many people would say it feels worse than that at peak times (and it likely is).
People finding cabs on 5th avenue at 6pm know there are no cabs to be had. You can't just raise your hand. It could take 15 to 20 minutes to find a cab.
So suggesting that you can get a cab 90% in NYC is a statement of fact, but it's not actually true.
Seems to me that a simple solution would be people wanting a taxi bidding up the price. So if a taxi is two minutes from completing its current fare, people can start bidding on getting a taxi, and the moment this taxi is free, whoever has the highest bid will win it.
There really are no other workable solutions. The other solution is to get more taxis on the roads, but that would just mean that a lot of taxis would be idle at non-peak hours, and that -- instead of peak hour-taxis being expensive -- the price of taxis in general would rise, because each taxi isn't getting as many fares.
> So suggesting that you can get a cab 90% in NYC is a statement of fact, but it's not actually true.
I would have to disagree. I work near the Empire State building and have taken cabs home after work (6pm) plenty of times and have never had to wait more than two red lights to get a cab (lights going N/S take about 45s so that's around 2-3 minutes).
The times you have to worry about is Friday/Saturday night if it is raining. You might have to wait a few minutes then if you want a yellow cab. Black cabs are almost always instantly available but they are a little pricier so I don't count them.
One of the top apps in Vancouver is from the yellow cab taxi company and it basically replicates Über's functionality except there is a huge existing fleet behind it and the prices are about half what Über charged before the regulators shut them down. Re-creating the über app is not too difficult, especially since most taxi companies already have sophisticated backend dispatching systems that apps can tie into. I'm guessing that the firms that sell this dispatching software got woken up by über and are offering white labeled apps to their taxi company customers. This will make it much harder for üÜber to break into new markets.
Now car2go, there's the future of cars on call. Especially in a city like Vancouver where you can nearly always find one within a couple of blocks.
The mistake, IMO, is assuming that they will be able to replicate that in other cities.
One reason is that a good part of their claimed novelty is being able to hail a cab via mobile-phone app (as well as get pricing and such), which is not actually novel in many markets. In much of Europe the existing taxi companies have that feature and it works just fine; it's not too hard to add it as an incremental improvement to the traditional radio taxi. I used the app from 'AAA Taxi' a bunch in Prague last week, and I don't see what Uber would offer above the existing functionality.
Not sure how that app works - but basically I don't have to deal with payment information (e.g. I don't need to carry cash), and I don't have to worry about tipping.
Both important to me, and I'd at least assume a few others. I absolutely hate the stress of having to deal with some angry cabbie and 5 minutes of BS because I dare use a credit card vs. pay cash.
Never heard of tipping for cabs. I don't think that's common in Europe. Some of the apps do let you pay via the app, though that is probably a minority feature still.
Uber is 30-40% cheaper than London cabs. Uber has rattled the cab-drivers so much that they're staging a protest next week to try to pressure cab regulators into blocking Uber's expansion.
The London black cab has a meter that prices the journey. Other taxis in London do not have a price meter.
Uber needs to obey the regulatory rules of the industry. Either they don't have a pricing meter (and thus journey price is agreed before hand) or they do have a price meter and all Uber drivers are regulated like any other black cab driver.
They can't ignore laws just because those laws are inconvenient to them.
"They can't ignore laws just because those laws are inconvenient to them."
I completely agree with you, but at the same time, for whatever reason companies (Uber / Airbnb) have been able to completely ignore rules & laws to the tune of tens of billions of dollars (in valuations).
It's almost "might makes right": ignore rules and grow as fast as possible, with the hope that you'll grow faster than the legal system can take you down. By the time the legal system could do anything, you're big enough to change the rules.
Big enough to change the rules, or big enough to absorb whatever fine they wreck you with. $1 billion in fines for making $10 billion you shouldn't've been able to make in the first place? Good deal!
Yep. The AirBNB folks engaged in flagrant spam, sending out fake unsolicited emails from fake identities, and refusing to remove anybody who wanted to stop receiving them.
But now Chesky is rich, so he gives away money and pretends that he's something other than an enormous fucking asshole.
Between Uber and AirBnB, and the large valuations they're getting despite being in flagrant violation of various local ordinances, it seems to be a gamble that they'll be able to lobby their way out of the problem, or expand into territories with no such legal framework.
Yes, Uber is cheaper - until it isn't, when it implements surge pricing. It's a very different model, which makes direct comparisons tricky.
The price of a London cab is regulated. Maybe that price is wrong. Uber can take advantage of it, but do you think the London taxi industry is really going to sit back and watch its market disappear without even trying to change price?
And the cab driver protests are more rooted in the fact that they had to spend a very long time learning 'The Knowledge' before being let out on the road, and that Uber has no such requirement. So, either it's necessary and they're letting Uber off the hook, or it isn't necessary and TfL has been lying to drivers.
So, I think it's more complex than just being "threatened by Uber".
Yeah, taking uber then would be stupid. There are plenty of yellow cabs within a few minutes walk from the starting location of that trip, and the trip itself would cost about $25 with a tip.
Satnav sucks in many cities, though, especially for POIs. When I visit NYC that's one of my bigger complaints about the taxi drivers: they have no idea where anything is, and it takes them forever to try to type things into their gadgets, often with mixed success. And still they always end up in the wrong lanes and end up swerving across traffic at the last minute, because they don't actually know where they're going or how the street layout works. IMO it's shameful that someone could be a taxi driver in a major city and not be able to navigate to prominent landmarks and neighborhoods. That's at least one problem you don't have in London, where the drivers give you confidence that they might have actually been to London before.
It's worth noting that all mini-cabs are 30-40% cheaper than London cabs, but it's a very fragmented industry with poor technology (Addison Lee has done a decent job). I would say 80% of my journeys in London used mini-cabs with the downside being that you had to wait 15-20 min longer (but in same cases much quicker) than black cabs.
> In NYC you can get a taxi 90% of the time by holding your hand up in a street corner.
Maybe you mean s/NYC/Manhattan/?
This is not true in much of the outer boroughs (and also in much of uptown Manhattan). In fact, in an attempt to address the problem, NYC created an entirely new class of cab that can only pick people up outside Manhattan.
Even finding a cab in NYC is a pain in the ass. If you're in Manhattan, cab drivers can deliberately discriminate against you if you want to travel to Brooklyn or Queens. The number of times I've had it happen to me makes me have zero sympathy about the idea of Lyft or Uber owning the NYC market. On top of that, Queens and Brooklyn are big, so it's improbable to flag a cab outside of very specific neighbourhoods.
Get in the cab, shut the door, tell them you're going to BK or Queens. Problem solved. If you act like a rube, you're gonna get hustled. I'd rather have that (and be able to call the city government and potentially have the person's livelihood terminated in the event of shenanigans) than 8x surge pricing because a middleman feels like it.
I live in Seattle and Uber is my preferred method of on-demand transportation, except for maybe rides to the airport where I might call a towncar service. It's cheaper than taking a Yellow Cab if you use UberX, and since I don't care about having a nicer ride, it works out great. No more waiting 30 minutes on Friday/Saturday nights and it's a huge improvement for after major events (even though surge pricing does sometimes lead me to select alternate means).
I'd really be interested to see how their revenue breaks down between larger cities with urban cores (SF, Seattle) and other areas that are more spread out (LA, etc.)
For years people said this about Uber in London but now the cabbies are protesting them because they're getting a lot of traction. It's important to remember that Uber is cheaper than cabs in almost all of the markets they're in. In SF they're more than 50% cheaper.
If you are in select parts of manhattan below 150th st, you can get a taxi very easily.
If you're in any of the other boroughs, you usually can't count on being able to hail a taxi unless you live on a main route to one of the manhattan bridges.
Given they are getting banned in entire markets, I think this evaluation is crazy.
UPS, Fedex, etc already have software just as advanced for planning their routes. Uber isn't going to magically beat them somehow. Heck, part of why they lean on the USPS is there is some economics in delivery outside of big cities that create a situation where it makes no sense for more than 1 delivery company to deliver for the entire area (and even then the USPS loses money on rural deliveries in some areas!).
EDIT: To be clear, I'm not saying this proves a bubble...I'm just saying Uber is overvalued given the fact they are going to get hit with regulations eventually that will squeeze their margins or be forced to retreat from numerous markets.
They have plenty of money to fight the regulatory situation, and it looks like they're gearing up to do so: https://www.uber.com/jobs/12416
("Urban transportation has looked the same for a long time—a really long time—thanks in large part to regulatory regimes that don't encourage innovation. We think it's time for change. Uber’s legal and public policy teams are helping facilitate that change around the world, and we’re looking for a hustler-wonk to help us develop that will change the world. This is no ordinary, run-of-the-mill gig -- seriously, have you read the news? We’re navigating some very interesting policy waters. Are you ready to dive in?
This position is based in San Francisco or Washington, DC.")
Uber, unlike Tesla, is costing the government money in the form of licensing fees. Its contractors are not paying for such licenses frequently. You can't simply "fight" the tax system like that.
Can they fight lobbying by the taxi companies? Yes.
Can they convince the governments to go tax someone else instead? I doubt it. The taxi companies haven't managed that trick either.
To be fair, Tesla has a much stronger case. The regs impeding Tesla make no public policy sense, and the perceived public benefit of Tesla is enormous on its face.
I don't think cities have to lose taxi-related revenues for Uber to be able to do business. They will have to figure out how to address concerns about liability insurance, overcrowding, etc. But they can still do that and make money.
Fair enough, but that is part of why they are getting banned and upsetting people. Its also part of their price competitiveness. Their contractors haven't been paying.
Until they win that fight there is significant risk. If this is the valuation with a huge legal battle factored in then what will it be without it? To me it doesn't make sense until the regulations are figured out.
I am sure they will be able to exert pressure from their investor community on the political community. I'm pretty sure $1.2 billion in VC money is as valuable than all of those VCs exerting political pressure to keep them in markets. ;)
I'm pretty sure there will be no bribes. :P
I think part of my issue is alot of the rules that their contractors bend/break are reasonable.
It is like my issue with AirBnb. There is a good reason for many of the 'short term' rental laws.
We aren't talking about the bullshit Tesla bans here, after all.
They are expanding pretty fast; have you heard of a (not so) far away country called Colombia? Well, they are already here; as they will be in all the nations that allow them to. Getting banned hurts them, but there is no universal ban in sight.
They are going to hit like AirBNB was and have to play by the same rules as everyone else which will squeeze their margins. :/
Maybe this speaks to my bias against people who bend reasonable rules for profit.
Also, many of the people who were looking into investing agreed with that:
"The bidding for Uber was so heated that some venture capital and private equity investors bailed out after the valuation soared beyond $10 billion, according to people familiar with the situation, who asked not to be identified because the talks weren’t public."
Ironically if they go further into South America and end up in the crazy deregulated market of Peru, where it seems like most car owners operate as taxi drivers, Uber will find their value proposition being that of the regulated taxi industry (pay more and wait longer to get registered drivers who are less likely to take you to a dark alleyway full of robbers and more likely to fix the dents in their car)
> Maybe this speaks to my bias against people who bend reasonable rules for profit.
I share the same "bias" (I would actually refer to it as "normal thinking", but hey…) and think it's a shame people in Silicon Valley have collectively decided it's fine to break the law as long as you can get away with it and get a high valuation out of it.
To take one example, AirBnB has clearly had a negative impact on many local rental markets via units being taken off the normal market and instead being turned into unlicensed hotel rooms, but their response has been basically complete and utter defiance to anyone to stop them, and this attitude gets applauded here on HN and elsewhere.
It's a fantastic business model (low liability, high scalability), and if they can pull it off, it will be worth way more than $17B. That's the bet that these investors are making. Same thing with AirBnB (and many many other tech companies).
isn't it the best confirmation of how big deal they are? Their value isn't in the "logistics math" or other hi-tech mumbo-jumbo. Their value is in the successful building of the momentum, a huge storm wave which can break through existing regulations which hasn't changed in a hundred years. An ability to change political things to be in your favor is one of the most important and lucrative business tools, pretty much an equivalent of Gold Finger. Uber hasn't won this game yet, but he is pretty promising contender...
I'm still unconvinced that Uber's market is one where the first mover has much of an advantage. What prevents those with more marketing and logistics resources from sitting back and waiting for Uber and Lyft to force the social/legal change that creates the industry before entering the market themselves?
Right now, the deep pockets want nothing to do with that business because the future is uncertain and there's a large liability risk. One of many probable ends for Uber and Lyft is being sued out of existence ala Napster. But if Uber succeeds in proving the market, competitors will follow. What does Uber have that's hard to match? Their technology can be replicated by those that know how to build software. Their drivers will bolt to any competitor that will pay them more. Their customers will bolt to any service that's cheaper. Without some sort of network effect, they'll either fail in their legal challenges or they'll find themselves in a race to the bottom and see their margins evaporate.
Worse yet, they could see themselves competing against companies that can bolt the Uber revenue source onto their current product. Facebook Transport, which leverages your network of friends for stuff like trusted reviews from people you know. Domino's ToGo...a ride home and a pizza. Amazon Local Lift...handle your grocery shopping on your way home. And that's not even considering if Google gets to self-driving cars first and decides to compete rather than license/sell the technology to Uber.
At the moment, Uber and Lyft feel like the penguins that gets pushed into the water to test whether there's a Shark or Whale nearby. They're either going to get eaten, or everyone else is going to follow them into the water.
It's not strictly "traveling salesman" but it is a real and challenging logistical problem.
I've chatted w/ some Uber engineers about this and the story I was told is that originally they were using Google Maps estimates. But the data is really important to capacity planning and giving travel time estimates within their app. And it was often very wrong. They even had a number -- something like "if you multiply google maps estimates by 1.5 they will actually be more accurate". So building a better version of this in-house, based on the millions of miles previously driven, was a very important and challenging problem.
Has anyone ever actually used the travel time estimates in their app?
I've taken hundreds of rides, and I don't think I've even once looked.
I find it to be a completely pointless part of the whole product - I already know roughly how far away something is, and how bad traffic may be. When I call an Uber, I simply look at the surrounding map and see where the cars are to get a decent estimate. The one they give is usually off by quite a bit, depending on who accepts the hail.
The problem, though, is that much of Uber's success comes not from massive innovation, but just doing an end-run-around the regulatory capture of the taxi industry. In places where the taxi market is more competitive, Uber doesn't offer as much value or find as much success.
Uber has made some impressive achievements, but ultimately their big success was in figuring out how to run a taxi-like service without paying for taxi medallions.
Exactly, this valuation doesn't sound insane. They actually have a revenue model, where they are generating cash, and it's not based on some wishy-washy "we plan on doing ads" plan in the future.
>I imagine a world where you can get anything on demand in minutes, and in that scenario Uber is the taxi, UPS, FedEx, etc. at the same time.
And, with that, the feeling that Amazon.com will snap this company up for cash and stock is almost palpable. Forget drones, that's PR stuff for now. Uber is the real PTTH (product to the home) service.
Given that Google has a huge stake in Uber, I think an Amazon acquisition is unlikely. I see Uber as Google's go-to-market plan for driverless cars (along with the trucking industry) ... if they can pull that off, something like this valuation is justified.
Robo-Uber as I like to call it is all very exciting and transformative. And I have little doubt that it will happen someday. But we're talking decades according to many people who really know the topic. For example, John Leonard who was on the MIT DARPA Challenge team has said "I don’t expect to have truly driverless taxis in Manhattan in my lifetime." http://digitalcommunity.mit.edu/community/featured_content/b...
Next time you drive in a city, think about all the little decisions that you're making constantly. I'd love to have a service like this but it's not going to happen within a time horizon relevant to any current financial investments.
Google has done an end-run around the challenges that make something like the DARPA Challenge difficult. Driving an autonomous vehicle in an unknown environment is still hard. But that's not the problem Google is tackling.
They're solving autonomous vehicles for known environments that are mapped down to extremely high resolution. Once you have that solid ground truth, adapting to changing conditions on top of it is far easier.
Which is why they've already logged 1.1 million kilometers of autonomous driving, including city streets with high complexity.
What the more traditional autonomous vehicle researchers didn't/don't appreciate is that it turns out to be easier to make the whole world[1] into a well-known environment than make a car than can handle unknown environments.
[1] more precisely, the parts of it that the average person would actually drive on, which is much smaller and simpler.
>it turns out to be easier to make the whole world[1] into a well-known environment than make a car than can handle unknown environments.
I fully agree. And it's the reason we could probably see fully autonomous operations on designated sections of limited access roads in the relatively near future. The unknowns in that environment--mostly other vehicles--are relatively well-defined.
The reason for the skepticism about more general self-driving without even a human backup available is that even if the roads are precisely mapped the environment in a city is still largely "unknown." (Although obviously some cities are more complex than others.)
"The University of Michigan, along with the local government and major automakers, is building a model town to test a system of self-driving "connected" cars.
.. It's laying the groundwork for the real-world system planned for 2021 in Ann Arbor."
Uber was doing $213mil revenue late last year before they dropped their pricing/commission to dramatically increase both supply and demand.
They've since increased their commission back to 20%, added a $1 surcharge, integrated with google maps, and they've probably validated the same day package delivery business model in NY.
Valuation probably reflects crazy revenue growth they have in so many markets + future opportunities to dominate other verticals.
Yeah, but it's such an easy problem to solve. I already had a few car services on speed dial so this wasn't really a big problem to begin with. All they did was centralize and market it. I live in NYC which is probably the #1 taxi market in the world and have rarely heard someone having trouble calling for a cab.
You live in NYC. That's just not indicative of the market as a whole though. I live in Minneapolis, where calling a cab is pretty much a worthless exercise. Uber has revolutionized the way I both commute to the airport (I can actually rely on it showing up within 30 minutes, a called cab may or may not show up at all) and how I can go out on the town at night. Previously my options were driving, or possibly a pre-arranged (as in 24 hours notice) black car.
I also spend a lot of time in Chicago, and there I do agree - the cab infrastructure works pretty well. I still use Uber, as it's far more convenient and reliable than calling a random cab company and waiting around for it to possibly show up (or waiting outside in the cold spending 30 seconds to 10 minutes flagging one down). Even in Chicago you get a 30% failure rate on radio dispatches.
It might be an easy problem to solve, but Uber is the first to realistically turn it into a useful service in many markets.
My only question is if they have serious revenue then why do they need to a valuation? Is it the expenses or the expansion that is driving the value? I'm definitely interested to see how it proves out because I agree with you that there is several different economies of scale and growth to Uber.
Unless Uber plans on building self driving cars, why would you imagine that Google (or whoever) will hand that business over to them? Whoever owns the Self Driving Car tech will be the winner there.
Prepending Edit: If you're reading this and have a lot more familiarity in how investments of this kind are made, and what kinds of things these investors are thinking, I really am making this post looking for education. I didn't finish college, and don't know a lot, but I'm trying. If you'd rather not stir the pot by talking here, my e-mail is in my profile.
The one thing that makes me skeptical about this, is historical data. From what I'm seeing, the entire US Taxi/Limo market is $11bn in value. So for them to achieve this, they'd need ~80%+ market share in the US, plus a high market share in both Europe and Asia. This is a valuation that smells similar to the WhatsApp deal, where the timeline to succeeding this valuation is 15-20 years out.
Is there some data I'm missing here that implies my data(from [1] for example) is flawed? Or that maybe this isn't such an out-there valuation, by way of possible growth from ridesharing, or other avenues Uber could explore without straying too far from their primary purpose?
A couple of points, without having closely looked at the Uber financing:
1) $11B is the estimate of the revenues of the US taxi & limo market. Uber aims to expand the size of that market, by drawing in people who otherwise would not have taken a taxi or limo.
2) Uber is global today, and can expand much faster than traditional T&L companies given its model. Global taxi & limo revenues are certainly higher than $11B.
3) Using $11B as the estimate of the US taxi & limo revenues, it is reasonable to assume that the market value of all US taxi & limo companies is larger than $11B. This assumption rests on the premise that if one owned all US taxi & limo services, one could generate ~$11B in cash annually. I don't know what revenue multiple is typical in this industry, but I'd be somewhat surprised to learn that it's <= 1. (Not to mention the monopoly licenses, brands, customer relationships, autos and other physical plant etc. that comes from owning these assets.)
I think UberX has the potential to become bigger than the taxi market. In the vast majority of American cities, especially in smaller ones, taxis are not readily available and are just too expensive for getting across a suburban sprawl.
The main Uber service depends on the existing market to some extent but I think it also has the potential to grow it.
> In the vast majority of American cities, especially in smaller ones, taxis are not readily available and are just too expensive for getting across a suburban sprawl.
There is a good reason for that, it's so much easier to own a car in these and is pretty much mandatory to get anything done. Cars + Gas are still relatively cheap in comparison to paying someone to come out and drive you around anytime you need to go somewhere, which is compounded in the suburbs by the distance and time involved and the area any taxi service would need to cover.
Sure, technology ala Uber helps here, but does this really change the fundamentals in theses areas? I don't think so, you still need to pay a driver and in areas where its easy and cheap to store a car it would make much more financial sense to just drive yourself around.
Driverless cars are really the fundamental shift that might change this, but let's be real that is still a risky venture, despite all the Google hype people are drooling over. This large of an evaluation only makes sense with that in mind.
Assuming your figures are correct, $11bn in annual revenue allows for a much higher valuation than $17bn. One of the main methods of valuing a company is the "multiples" approach [1], which values the company at a multiple of it's annual revenue, with the multiple typically falling between 5-15.
A commonly used multiple is the price to earnings multiple of the entire industry, which is absurdly high for major tech companies- Google, for example, has a P/E ratio of ~30 [2], and Facebook has a P/E ratio of ~80 [3]. For non-tech companies, the average ratio is roughly 15.
So if we want to use the average P/E ratio, we can say that a very very very rough price for the entire Taxi/Limo market is $150bn.
> Assuming your figures are correct, $11bn in annual revenue allows for a much higher valuation than $17bn.
[...]
> So if we want to use the average P/E ratio, we can say that a very very very rough price for the entire Taxi/Limo market is $150bn.
P/E is price/earnings ratio, it's not calculated using revenue. Earnings is revenue less expenses.
So if the taxi industry in general is operating at a 10% profit margin, that would mean they're earning $1.1bn per year, and with a P/E of 15, that would be a $16.5bn market cap.
There's a difference between revenue and valuation. In this[1] example of taxi companies, valuation is 3x the revenue.
And the great potential of the company will show once they find a way to offer efficient shared transportation services at much lower prices, like [2]. If they do, they'll basically swim in money.
The leaked figures late last year suggested Uber was collecting around $1b in revenue through their app. It's been suggested they take around 20% of that for themselves and are doubling their revenues every six months. That suggests their revenues will probably be better than WhatsApp's (though at a higher cost) this year, and they have orders of magnitude more theoretical potential for growth.
Admittedly, that growth could be curtailed between fighting one of the most protracted and costly series of legal cases in history against an entire industry, but based on reported figures the growth arithmetic would be strongly in their favour if they win in enough jurisdictions.
And if they don't get crushed by competitors willing to operate on thinner margins because "ride-sharing" needn't veer towards monopoly, of course...
"From what I'm seeing, the entire US Taxi/Limo market is $11bn in value." That sounds incredibly low. That's twice the value of KING, and cabs are a lot bigger than Candy Crush.
Maybe you mean the market is $11bn/year in revenue (or even in profits)?
Yes, but you're comparing a company (Uber) with an annual revenue number ($11B), which is one property of a market.
For comparison, Apple is currently worth around $565B, but its revenues were $176B in the last 12 months. Chipotle is worth $17B, but its revenues were $3.4B over the last 12 months.
A firm's revenue and its value are related, but usually not equal.
Before 2012 (when I started using Uber), I took a cab (outside of NYC) maybe 5 times in a year. Today, I take an uber 5 times a week. This is anecdotal but I am sure that's the market growth investors are looking at.
Price is not the issue for me. It's the service quality and convenience. I used taxi's to get home from bars and I would say 50% of the time I would have a problem (card machine doesn't work, don't go to my address, won't accept 3 people). Uber eliminated the friction.
I could be wrong, but I think that's $11bn in revenue, not value. $17bn valuation for Uber makes a lot more sense with this lens -- they are rapidly accumulating a large share of that $11bn/year market.
In addition to expanding the taxi market, Uber also has great potential to expand into other transportation and logistics markets. Who is going to direct the fleets of driverless trucks hitting the road in the 2020s?
Uber could potentially expand the taxi/limo market though. Anecdotally, I know that my friends and I are willing to use Uber for trips where we would not consider a taxi.
This is an interesting valuation[1]. It shows that a workable replacement for an established service business (one suffering from large regulatory capture) is considered so significant from the perspective of these bankers. It also suggests that AirBnB could do really well if they went back to the well (not that I recommend it, money drags you down).
But more importantly this looks like an investment in a public company not a startup, or put another way, the difference between preferred and common stock has no doubt reached near parity. If the bankers believe the company will come out into the public markets at 34 - 50B then that puts them in some really rarified territory. Would the wider market share their enthusiasm? Or would this be like Facebook's debut, zero to down change for the first 6 - 12 months of existence.
The good news is it gives them a chunk of cash for the big fights they are fighting. Of course I'm curious if the management took any money off the table or if this is all earmarked for lawyers and expansion.
[1] I also agree the bubble hysteria is nonsense, whose money is at risk here? the .01% so don't sweat it.
You are being very optimistic. For example, as the article says:
> Kalanick added that Uber would continue to experiment “aggressively” with lowering prices, in an attempt to boost demand and increase the number of trips drivers can make each hour.
I don't disagree that the valuation stretches credulity, perhaps past the breaking point. The narrative of the 'old bubble' was hyperinvestment by retail investors and mutual funds in unsustainable technology visions. The only thing 'wrong' about that old bubble, was that people who didn't know any better lost their money. Sometimes because their cousin or grandchild said they should put their savings bonds into tech stocks, sometimes because an aggressive fund manager put in more risk than they bargained for. Either way, people who didn't know better got hurt. In this hypervaluation the people at risk are investment bankers that do know better, and if they lose all their money, then fine. That was the bet they made. To use a gambling colloquialism, "Nobody cries for the roulette player that puts it all on 13 black."
I don't necessarily agree that markets "exist" to allocate capital efficiently, I would agree they exist so that capital can be allocated. When the market is fair, capital is pretty efficient allocated, but the private financing market is not fair on at least two axes, there are artificially high barriers to creating new goods (startups in this case), and information is not evenly distributed amongst all parties. That does put a crimp on the efficiency of their operation.
This is another way to think about Uber's valuation - the license to operate a yellow cab in NYC is a tradeable asset whose value can be observed. The value of all licenses in aggregate, comes to about 13 billion, give or take a few. And that's just one city.
You can make an argument in both directions. On one hand, clearly the taxi industry is large enough to justify this kind of valuation or even much more. On the other hand, Uber currently benefits greatly from this legally enforced supply restriction that chokes off their competition while not yet applying to them. Most large cities can dramatically lower the cost of and increase the availability of street-hail cabs by issuing more permits, which can cut into Uber's revenue. Cities can also decide to apply more regulation to car service businesses or even Uber-style businesses more specifically to even the playing field.
> "Uber is creating 20,000 jobs per month, the company said in a blog post."
Really? "Jobs" as in W-2 forms and health benefits? Or independent contractors?
Not that the latter are necessarily bad, but they're fundamentally different. It is misleading to call them "jobs" in their blog headline, then switch to "partners" and "small business entrepreneurs" in the text.[1]
I understand that traditional taxi drivers don't have "jobs", either, and Uber might be a better client for a contractor than traditional taxi companies. But that's beside the point I'm talking about, which is unwelcome and deceptive PR spin.
I'd agree that "job" should imply "full time job" unless explicitly qualified; otherwise hiring 10 people for 4 hours a week would be 10 jobs rather than 1. But I can't see "job" why it should mean "job at an enterprise organization", which as far as I can tell is what you imply with W2s and health benefits. There are millions of Americans who are self-employed, file their own taxes, and have (unfortunately very expensive) individual health insurance. It would be bizarre to say they shouldn't be counted toward headlines statistics like "economy grows by 20,000 jobs".
The whole "creating jobs" narrative is a bit odd. It's not like the people working for Uber would have just sat on their hands otherwise. They would have found something else to do.
Some of them would've even been doing a pretty similar thing. To the extent that part of Uber's growth is through taking market share from competitors in the car-driving-for-money sector, they're shifting jobs between companies, not creating new ones. Some may also come from expanding the size of the whole market, but you can't just count the total number of employees and use that number as the net-jobs-created.
By comparison, the taxi & limo industry does $11 billion in sales across the entire US market.
For Uber to ever justify just this funding round, they'll probably need to become roughly the size of 1/3 the entire taxi business in terms of sales (assuming $3.x billion in sales and $600x million in profit off that base, and assuming a reasonable 20 to 30 pe ratio over time).
I'm guessing Uber is betting on selling customers a lot more than their current service offerings. There's no other way they can justify this type of valuation.
As of 2013, Uber was only generating $200 million in revenue for the entire year (according to the leaked numbers). Uber could grow crazy fast and still not justify this valuation for six or seven years. That's quite the long term bet being placed here.
Uber could be growing at 20% per month, or 9x per year, even as recently as December. That suggests they could reach the revenue target you mention in less than two years. Obviously, growth becomes dramatically harder once you become a fraction of order unity of the market, but I don't think this bet is necessarily 7 years long.
Yeah, I was going to bring this up also. Obviously there are international markets as well, and the mere existence of Uber could in itself grow the size of this industry. However, if they are expected to become Google or Facebook-sized they're going to have to tap into some other verticals.
Here is some fun Uber-related stuff from Baltimore, MD:
UberX is cheaper than taxis for the short trips in/around the South Baltimore downtown area (by the sports stadiums). These are the quick trips jumping around the bar/restaurant areas.
An UberX is only $30-$40 from the Inner Harbor area to most metropolitan areas 20-25 minutes outside of Baltimore, which is a crazy good deal, especially if you split fares.
I've yet to see purge pricing or a lack of available cars on weekends in the major going out areas like Fells Point, Federal Hill and Canton.
I've seen "normal" people with Uber on their home screen.
I've heard quotes like this: "I spend so much money on Uber it's absurd." "I sold my car and use Uber." And "It's so convenient you can't NOT use it."
So in regards to Baltimore, MD, I agree with the top commenter. This a real business doing really well here from a user's perspective.
About a month ago my girlfriend told me how she was late for work on morning and wouldn't make it on time if she took her usual public transportation route, so she took Uber.
I was surprised because I never talked to her about Uber and I usually introduce her to things like this. Turns out its fairly popular at her school and other downtown Chicago campuses. Students just like it better then cabs and find it easier to get a good rate and nearly any time in the day.
I still have yet to use it myself, but I feel they are making huge in roads to being a common place name and that alone seems to justify this valuation. This isn't theoretical growth. They are getting huge, and its not just in the tech bubble.
Congrats to Uber, as someone that moved to the Bay Area a little over a year ago, this company has been one of the most reliable and helpful services I've used. It's amazing the growth they've had.
Uber was doing $213mil revenue late last year before they dropped their pricing/commission to dramatically increase both supply and demand.
They've since increased their commission back to 20%, added a $1 surcharge, integrated with google maps, and they've probably validated the same day package delivery business model in NY.
Valuation probably reflects crazy revenue growth they have in so many markets + future opportunities to dominate other verticals.
From Uber website: "Get a ride that matches your style and budget"
In the low budget/style area, they are competing with the public transportation system? Do they have all this financial/momentum muscle?
And in the high budget/style, they are competing with rich people who can own their own BMW/Ferrari with a private driver?
Who "needs a ride" and chooses an expensive "SUV". How could this thing make a difference in anyone's life? "Oh sure, today I want to go to work in a fancy car, wheew!". Perhaps Barney Stinson?
It seems there is a lot of opportunity in NOT solving the real problem (public transportation). Good for Uber.
there are a lot of rich people without cars (a lot of manhattan). i know tons of people who hate cabs and can't really justify a full-time driver--these people take a lot of ubers. also, cabs can only take 4 people at a time. the ability to call a large car when going out has a made a huge difference.
I know several people in the SF Area that take Uber almost everyday, multiple trips. It's not unreasonable to think that $/user in such cases is a few thousands.
Who really uses cab/taxi services?
I grew up in Toronto, Canada (not a big city compare to NYC, but still pretty big) and now lives in SF Bay Area. I took public transportation (sure, they sucks sometimes) , riding bikes, and I own a very basic car (Toyota), I have never really have a need to use a taxi service in probably 17+ yrs of my life so far. I really not sure how this is improving people's life because I don't see a problem with the way I lived now.
What are some advantages that I really need a taxi service? Sorry, I don't drink, so no need to worry about drink-and-drive.
I would like to see someone here can enlightening me.
It's pretty safe, although their insurance policies are smaller than that of licenses cabs (think $10k vs $100k). Drivers undergo background checks and are rated after every ride. Uber does not tolerate drivers who get less than 4 stars.
What makes it better than Craigslist is the convenience. Take out your smartphone, drop a pin on your location, and get a ride within minutes. Plus, you don't need to worry about payment, it all happens behind the scenes via your Uber account.
No I meant that there would be no central system connecting drivers and riders. They would connect directly, as if all buyers and sellers met at a predetermined location to match each other.
Hi - I'm one of the people that uses Uber and loves it. I live in a big city, Chicago, and guessing from your statement you don't live in a taxi city. Let me tell you why I love uber and hate taxis (or why I only take Uber Taxi).
1) I used to travel for work, and for me that meant getting a 5:45am cab ride from downtown Chicago to the airport. Now, I'm sure you're aware that Chicago is freezing during the winter months, so standing out in the snow at 5:45am on a monday is not something I want to do. What were my options before Uber? 1) Wait outside and try to hail a cab. 2) Call dispatch and be told that a cab may or may not be on its way. This is the real pain that Uber solved for me. I cant tell you how many times I called and was told a cab would be there in 5 minutes, then 15 minutes later, no cab had showed up. So now, its 5:55am on a Monday in the cold Chicago winter, I'm stressing about missing my flight, all because a cab couldn't show up when I ordered it. Uber solved this exacty pain point that I felt. On another note of why I hate taxis and only take uber taxi. A few years ago when Chicago was going after the olympics, they required all taxis to accept credit cards. Now, try to pay for a fare in Chicago with a cab, 50% of the time 'The machine is broken', but when you have no cash, it magically starts working again. I get that these guys do not want to pay the 5% charge to process it (another issue is cab companies upcharging to process cc, but not for this discussion). With uber, I never have to worry about the driver not able to make change for me and just expects hes getting a bigger tip, I never have to worry about only having a CC on me and the driver bitching and complaining about accepting it. Uber solved this problem. Now, they haven't just solved my problem, they've also solved their drivers problem. Talk to a cab driver, ask them how they get paid for their credit card receipts. I'll be willing to bet that they have to go to a special office, receipts in hand, wait a few hours in line, all to get paid. That is ridiculous! Uber direct deposits the money in the drivers bank account, no time wasted by waiting in line, no worry about lost receipts. Now for my last point, imagine you left your phone/wallet/camera/foobar in a taxi in Chicago and you paid in cash. Try calling our 311 number and reporting it, you have about as good of a chance of finding it as comcast does at providing great customer support. With uber, you know your driver, you can simply contact uber and or the taxi company to give specifics on what you lost and where you lost it.
Also use Uber in Chicago (and now many other cities during travel, woo!) and I don't really have much else to add.
I can't stress how important the airport thing is. Radio dispatch by cab is the most unreliable horrible mechanism ever. It almost may as well not exist, because a cab might show up in 5 minutes, it might show up in 15, or it might show up never. Impossible to rely on. Due to Uber being reliable I've taken more car rides than usual to O'hare on days when I'm running late, or otherwise don't want to deal with the Blue Line or waiting outside for a cab.
Basically, cab companies did this to themselves by being horrible at customer service and not giving a shit. They are up there with Comcast in the "giving a fuck" department. Ever call to complain that your cab didn't show up? Ha!
And if you think this is great for a well-served city like Chicago, it's utterly game changing for under-served cities like Minneapolis. I now can actually take a ride to the airport instead of driving and spending $250 parking my car for a week. Why? Because I can depend on the Uber showing up when they say it's going to. Cabs, I'd have to give at least a 2 hour buffer in case the first 2 I call never show up.
Basically if this puts the cab companies out of business, it couldn't have happened to better people and I won't shed a single tear. Good riddance.
I feel your pain, but you completely left out the option of the train. I usually use it to get to the airport. It is slower, but it costs a lot less and runs 24 hours a day. If you're lucky, the train will even take you up the escalator.
Your market valuation puts the average fare in the region of $100, the linked document (page 10) says "The average yellow taxi fare in 2013 was $13.40" so I'm not so sure the market is $20bn, I'd guesstimate somewhere around $3-5bn for the vehicles they mention in the article.
Uber has serious revenue. They do more trips in San Francisco than taxis do. This isn't a pie-in-the-sky "there will be money there, I'm sure of it" thing. They bring in billions, and they're starting to win entire markets.
The on-demand-transportation market is enormous. I can literally see a future in which the majority of the taxi industry is now called "Uber." That's a big freaking deal.
What Uber can do doesn't even stop at "transportation." How many "Uber for X" startups have you seen? Uber could be all of them, and do all of that. They've nailed the difficult math behind the logistics issues - basically a scaled version of the traveling salesman problem. They do real math, and solve real problems.
I imagine a world where you can get anything on demand in minutes, and in that scenario Uber is the taxi, UPS, FedEx, etc. at the same time.
In a few years when self-driving cars become the norm (crossing my fingers), Uber will be even more valuable. I may be dreaming, but empty cars you can grab any time and take anywhere or request anything... it really is a beautiful thing.