First up Bloomberg:
Uber Technologies Inc., the car-sharing service that’s rankling cabbies across the U.S., is fighting its biggest protest from European drivers who say the smartphone application threatens their livelihoods.And from Professor D's blog Musings on Markets:
Traffic snarled in cities from London to Madrid and Berlin to Paris as strikes and gatherings by more than 30,000 taxi and limo drivers blocked tourist centers and shopping districts. They are asking regulators to apply tougher rules on San Francisco-based Uber, whose software allows customers to order a ride from drivers who don’t need licenses that can cost 200,000 euros ($270,000) apiece....MORE
A Disruptive Cab Ride to Riches: The Uber Payoff
On June 3, news reports carried the story that multiple investors (including big name institutional investors like Wellington & Fidelity) had invested $1.2 billion into Uber, a technology company that matches consumers to car services in many cities around the globe. Based on the investment (and the percentage of ownership that these investors were getting in exchange), the imputed value for Uber (pre-money, i.e., prior to the influx of $1.2 billion) was $17 billion, a mind-boggling sum for a business that generates a few hundred million in revenues and has little to show in terms of operating income. That said, Uber has lots of company in this high-value space, with Airbnb and Dropbox being two other companies that in recent months have been valued at more than $10 billion by investors. With all these companies, the key selling point is disruption, the latest buzzword in strategy, with company owners arguing that they are upending existing ways of doing business (hailing a taxi, with Uber, and finding lodging, with Airbnb) and given the sizes of the businesses that they were disrupting, that the sky is the limit on value.If you are old enough to remember market fevers from past booms, you are probably inclined to dismiss both the claims and the valuations as fantasy. I do believe, however, that there is a kernel of truth to the disruption argument though I think investors are being far too casual in accepting it at face value. As I attempt to attach a value to Uber, I have to confess that I just downloaded the app and have not used it yet. I spend most of my of life either in the suburbs, where I can go for days without seeing a taxi, or in New York City, where I find that the subways are a vastly more time-efficient, cheaper and often safer mode of transportation than taxis.Uber: The business modelUber is not in the taxi business, at least in the conventional sense, since it owns no cabs and has no cab drivers as employees. Instead, it plays the role of matchmaker, matching a driver/car with a customer looking for a ride and taking a slice of the fare for providing the service. Its value comes from the screening that it does of the drivers/cars (to ensure both safety and comfort), its pricing/payment system (where customers choose the level of service, ranging from a car to a SUV, are quoted a fare and pay Uber) and its convenience (where you can track the car that is coming to pick you up on your phone screen). The figure below captures the steps in the Uber business model, with comments on what it is that Uber offers at each stage and whether that offering is unique:Uber has been able to grow at exponential rates since its founding in 2009 by Garrett Camp and Travis Kalanick, with the latter (who is new CEO) claiming that it is doubling its size every six months. While we have no access to the company's financials, there have been periodic leaks of information about the company that allow us to get a sense of its growth. Here, for instance, was a picture that was widely dispersed in December 2013 of a five-week period in late 2013...MUCH MORE
Previously:...Bottom line: Can the disruption option explain the difference between the assessed value ($17 billion) and the estimated value ($6 billion, with intrinsic valuation)? It is possible but not probable. For the option to be worth $11 billion, the potential markets that Uber can enter, assuming it is successful in the car service business, will have to be at least four times larger than the base market (the $100 billion taxicab market). I know that there is talk of Uber becoming a player in a futuristic world of driverless electric cars, but even if that scenario unfolds, I don't see why Google and Tesla would let Uber have anything more than crumbs off the table.
The end game
The numbers seem to indicate that Uber is being overpriced by investors who have valued it at $17 billion. Since these investors are presumably sophisticated players, how would I explain their pricing? I will not try, since I did not pay the price, but it is worth remembering that even smart investors can collectively make big mistakes, especially if they lose perspective. The tech world is a cloistered one, where the leading players (venture capitalists, managers, serial entrepreneurs) immerse themselves in minutiae and know and talk to each other (and often only to each other). Not surprisingly, they develop tunnel vision where technology (or at least their version of it) is the answer to every problem, the status quo is both inefficient and easily disrupted and 50 times revenues is cheap! If history is any guide, tech geeks are just as capable of greed and irrational exuberance as bankers are.
The Man Who Hated Tesla: Professor Damodaran Revises His "The Stock is Worth $67" Call (TSLA)
Tesla: More on the $67.12 Valuation (TSLA)
Tesla: Even More on Aswath Damodaran's $67.12/share Valuation (TSLA)
The stock is up $2.22 at $165.74.As most of our readers know, after that series of posts the stock traded up to $265.00 on Feb. 26, 2014.
It appears the good professor is developing a cottage industry in Tesla valuation posts.
Currently $204.19 up $1.89.
