New Uber Funding Round Could Value the Company at $25B

http://recode.net/2014/11/07/new-uber-funding-round-could-value-the-company-at-25-billion/

by prostoalex • 12 years ago

33 46 12 years ago

johnloeber3• 12 years ago

It's not easy to correctly value Uber, because it's not so easy to value the taxi industry, either. By some metrics, the global taxi industry is worth no more than $25B.[0] This seems spurious, and Nate Silver, using a different metric, values the taxi industry at about $100B.[1]

So it might seem as if Uber would have to seize a large fraction of the taxi market in order to justify its valuation. Some (myself included) say this is unrealistic, because Uber is unlikely to hold on to a monopoly or majority share of the rideshare market.[2]

The important factor, however, is that Uber is rapidly expanding what previously was the conceived size of this market. People who were not taking taxis previously are now using Ubers. There was an article on here recently about parents using Uber to ferry their children around. Some folks are leaving their cars at home, and are using Uber instead, because it makes sense financially (gas+car maintenance costs, in some cases, are higher than those of taking an Uber).

Beyond this, I expect to eventually see the integration of the rideshare market (Uber, Lyft, etc.) with other services, like delivery and last-mile transportation. This is already being done by Uber Rush. I would not be surprised to see Uber and its competitors greatly expand what we previously thought of as the Taxi industry, such that even a small share of this very large industry could be well worth the $25B valuation.

[0] http://iterativepath.wordpress.com/2014/05/22/if-you-most-ag...

[1] http://fivethirtyeight.com/features/uber-isnt-worth-17-billi...

[2] http://johnloeber.com/w/uber.pdf shameless plug

mastermojo• 12 years ago

I also like to keep in mind that investors who purchase a percentage stake in the company valuing a company at 25 Billion probably have favorable terms and preferred stock such that they will make money even if Uber goes through a liquidation event at less than that amount.

I see Uber being a 10 Billion dollar company without any problem.

shawn-butler• 12 years ago

How?

Aren't they 1) basically facing a serious organized labor problem once they become actually legal, and 2) 5-10 years away from being made irrelevant by autonomous technology?

hkmurakami• 12 years ago

regarding last mile transportation, it's worth noting that Uber employees themselves not infrequently take Uber from 4th and Kings station to their office at 10th and Market, which is only a few miles away.

johnloeber3• 12 years ago

What I meant by "last mile transportation" was the transportation of physical goods, like packages, mail, delivery food, etc. Drivers could probably fit a couple of these "errands" in at no loss, while increasing the efficiency of last mile transportation/delivery for the services seeking to deliver goods.

mikeyouse• 12 years ago

Uber employees also get a lot of Uber credits as part of their compensation package. I'd be curious to see how many would still use Uber if it cost money out-of-pocket.

nrao123• 12 years ago

The Uber article that you referred to as Nate Silver is not actually by him. Its by Ashwath Damodaran (The NYU corp finance prof)

http://fivethirtyeight.com/features/uber-isnt-worth-17-billi...

His basic assumption was to use the taxi market as the total addressable market (TAM)

Bill Gurley, a VC from Benchmark and one of the investors in Uber, lays out alternative scenarios for TAM including going after car ownership. http://abovethecrowd.com/2014/07/11/how-to-miss-by-a-mile-an...

Damodaran's response to Gurley concedes its probable/plausible/possible for uber to get into non-Taxi and larger markets: http://aswathdamodaran.blogspot.in/2014/07/possible-plausibl...

Bottom line: the optionality of uber going into these larger markets is what is driving these valuations

jboggan• 12 years ago

Anecdotal support; Uber is keeping me from purchasing a car. I have an inexpensive motorcycle that handles 95% of my rapid transportation needs, and I try to live in areas where walking or mass transportation solve my "slow transportation" needs. I use Uber for all the edge cases where walking or motorcycling doesn't cut it, and I cannot see any scenario where I'd prefer to own a car and drive myself compared to the ease and reliability I have experienced with the service so far. Maybe Uber won't be the king of the hill when the dust settles, but so-called "ride sharing" services absolutely are taking dollars that would otherwise go into purchasing a vehicle, a much larger market.

johnloeber3• 12 years ago

Regarding mistaken authorship: whoops, sorry. That was inattentive on my part.

pinkyand• 12 years ago

Bill Gurley's post is very interesting and in-depth. One thing he doesn't mention is the potential of UberPool(combining multiple passenger trips into a single car) to further increase demand. I wonder why is that ?

randomflavor• 12 years ago

Isn't Uber/Travis always making little comments like "if we can get you a car in 5 mins, we can get you anything in 5 mins" - they are tuning an enormous logistics engine with unlimited optionality. Cars are just the start... Boober here we come (according to the ceo and pandodaily)

dana0550• 12 years ago

I'm a heavy Uber user and I even sold my car about a year ago because I no longer needed. I use it exclusively for my trips around San Francisco and the East Bay. I've noticed recently (past ~1-2 months) there is always surge pricing. I wonder if this has to do with drivers not being paid enough or if they internally redefined what surge means.

Either way I like Uber but I just don't understand how there is always surge pricing. This is still has not deterred me from using it but still I wonder...

msoad• 12 years ago

You don't have to be royal to Uber. Always check prices before ordering. Here you can see prices from all major Uber-like companies: http://uphail.com/

prostoalex4• 12 years ago

Is it a real-time check, which would include surge pricing, or just a calculation based on carriers' published rates?

sgloutnikov• 12 years ago

http://whatsthefare.com is pretty helpful. Have it bookmarked on my phone and check it before using either Uber or Lyft. They used to be able to get the surge from Uber, but it's an estimate now. Probably got blocked from Uber is my guess.

chermanowicz• 12 years ago

Also, http://whatsthefare.com/

Read their blog, it's pretty interesting. Fred Wilson also discusses the findings here: http://avc.com/2014/10/the-cost-of-loyalty/

aajafo• 12 years ago

Shameless plug, but I put together http://www.Ryder.io for checking prices across Uber/Lyft/Sidecar/Summon. Ended up being very similar to whatsthefare

benatkin• 12 years ago

There's an app called Surge Protector: https://itunes.apple.com/us/app/id925613132

jusben13693• 12 years ago

Sounds like summer ended and everyone returned to work increasing demand and thus surge pricing (best guess) Then you had Oracle World and Dreamforce too.

gergles• 12 years ago

Surge multiplier is currently 1.8x in midtown Manhattan. I can see cabs available with no problem (even if I just switch to uberT, it shows about 10 cabs in the area, which don't 'surge'.)

On a related note, whenever I see the surge pricing, I just see a failure of Uber to recruit enough drivers to meet demand. I don't view it as the dynamic pricing libertarian wonderland that Uber does. I also see the surge in effect almost every time I open Uber, so I pretty much never do unless I'm in a dysfunctional city (cough SF cough) and there's not another choice.

I think that in the long run, their continued insistence to not clear the market and to instead be able to show lots of empty cars driving around trolling for 3x+ fares through surge pricing is going to make public opinion quite negative among the general public.

steven2012• 12 years ago

Just out of curiosity, how do people who invest at $25B valuation expect to make money? Are they okay with it going from $25B to $50B and getting 2x, or are they also looking for 10x+ return?

_sentient• 12 years ago

The expected returns on late stage investments are much lower, which is proportionate with greatly reduced risk. Nobody is betting that Uber will return 100x from this point.

prostoalex4• 12 years ago

Investors usually get preferred stock, which sometimes comes with

* liquidation preferences

* dividends payable upon liquidity events (with their own liquidation preferences)

* board seats

* pro rata rights with future rounds

Depending on specific type of investor, some of these things turn out to be super-important compared to others.

A lot of late-stage also is facilitated by wealth management arms of large investment banks, and is a way for their clients with net worth of $1m+ to get in on the deal before the IPO, at which point even marginal returns are acceptable. A Google query with terms "Facebook IPO", "date: 2012", "private market", "regretted" sheds some light on that.

swartkrans• 12 years ago

I've never used uber or lyft, but I used sidecar yesterday for the first time, and given this was my first experience with this kind of service I have to say this is so much better than having to hail a taxi. It sucks that you have to have a smartphone, (what do you when battery is out) but otherwise it's easy to see how transformational this kind of new service is. You can pick your driver, your driver can accept or reject based on your destination, you can see how much they will charge up front, and you can tip right from your phone making the thing entirely cashless. It's pretty amazing.

avalaunch• 12 years ago

I've used Uber and Lyft but have not yet tried Sidecar. Based on your description, Sidecar sounds a lot better than hailing a taxi but a lot worse than Uber/Lyft. I would much rather give up the ability to pick my driver to have the convenience of only having to click one button to hail a car. Plus the idea that the driver can reject you and then you have to start over... what an unnecessary bit of friction.

rayiner• 12 years ago

Uber sucks. Have you ever taken a cab in a city with decent cab service? You just hold up your hand and an experienced driver takes you where you're going. With Uber, you futz with the app, then the driver circles the block trying to figure out where you are, while three cabs pass by you, and if he doesn't cancel the pick up after giving up, futzes with the GPS and takes you along an inefficient route because he doesn't know better.

jusben13693• 12 years ago

Man I've done a lot of both and feel that exact opposite. Cabs are the pain and all the futzing to pay and tip squirming in back seat with bags etc.

philwelch• 12 years ago

I've literally never had that much trouble with Uber. I also live in a city without decent cab service.

bsimpson• 12 years ago

In two weeks' time:

People Who Cut You Off in Every Bike Lane Now Worth Infinity Dollars

foobarqux• 12 years ago

They are probably raising money to buy Lyft.

georgeecollins• 12 years ago

Uber said that the median driver salary was $90,766 for UberX drivers in New York, but reporters can't find one driver who made that much (google the slate article for details). I don't think that is really crucial to the success of the company, but it is crucial to my trust of the companies estimates.

Groupon or Zynga should teach people that a business model can expand rapidly and make money for a while, or attract enough invetment to appear viable. The question is: will this still be making a lot of money in five years? When they have to expand to less attractive markets? When they have to defend against copy cats?

It's not that it isn't a good business, or a clever company. It's just that at $25 bn it has to be a really profitable, really big company for a long time. Maybe.

New Uber Funding Round Could Value the Company at $25B

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