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Why Uber just might be worth it at $18 billion - Vox


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Uber HAS to become more than taxis:

Christopher Mims at the Wall Street Journal thinks this is a crazy valuation, essentially on the grounds that Uber lacks a "moat" against competition. Right now, Uber competes against incumbent taxi operators and also against two other startups — Lyft and Sidecar — that have somewhat similar business models. Right now in the hottest markets the Uber/Lyft rivalry in particular is scoring short-term wins for drivers and long-term wins for customers. There just aren't going to be enormous profit margins here no matter how well Uber runs its business.

How big is the market?

If the case against Uber is wrong, it's almost certainly not because Mims is wrong about profit margins. But there's more to life than profit margins. Retail stores have been a notoriously low-margin business for decades. But Sam Walton built an extremely successful company based on undercutting those margins and then becoming enormous. Now Walmart is getting undercut by Amazon, a company with even more miniscule margins but even more potential for scale and ubiquity.

Mims writes that "even the most aggressive estimates of Uber's value — let's assume the company captures 50% of the world taxi market in 5 years — mean the company would still be worth less than $18.2 billion."

But what if the introduction of Uber and Uber-style apps greatly increases the size of the world taxi market?

2013 US market size of taxi cabs is $11B.

Uber CEO @travisk on self-driving cars: "When there’s no other dude in the car, the cost of Uber becomes cheaper than owning a vehicle"

In a world of driverless cars, essentially all rides become taxi rides. And having a lead on developing the best routing software, the best customer support, and the best brand looks like a decent moat. Dispatching fleets of cheap ubiquitous driverless taxis would absolutely be a low-margin business. But it would also be a gigantic business. Right now the taxi industry accounts for a tiny share of Americans' overall spending on transportation. But the transportation sector as a whole — buying and renting and maintaining and fueling vehicles — is about a trillion dollar business in the United States alone.

That's a big prize and Uber has the best position in the race to capture it.

Right now, Uber is in a fight with Florida regulators and taxi incumbents:

If Uber wins, it will poach market share from existing Miami-area cab companies. But it will do more than that. It will significantly increase the number of taxi rides that people in the Miami area take.

And that is the fundamental Uber value proposition. That by making it much easier to drive a cab to make money on the side (you just need a decent car and time on your hands) and much more convenient to hail a cab, you can greatly increase the size of the paid rides market.

Uber is creating jobs!

All-purpose urban logistics is bigger than taxis:

Right now, taxis (the delivery of human passengers to their destination) exist as an entirely separate regulatory category and business from the broader industry of delivering non-human cargo. But Uber's stabs into the courier and Christmas tree delivery industries are indicative of a larger aspiration to erase that distinction. Summoning vehicles and routing them to destinations works for people, but could also work for pizzas or groceries or anything else.

Uber has also delivered ice cream and kittens.

Quoting the Alyson Shontell article:

Kalanick's close friend and Uber investor Shervin Pishevar explained Uber's grand vision to Inc: "Uber is building a digital mesh — a grid that goes over the cities. Once you have that grid running, in everyone's pockets, there is a lot of potential for what you can build as a platform. Uber is in the empire-building phase."

Another investor (not invested in Uber) agrees that a $10 billion valuation is reasonable — if not low — for Uber. That's because the company, this person says, is "highly profitable" and its revenue projections are massive. One leaked revenue sheet showed Uber pulling in about $20 million per week late last year, and its growth doesn't seem to be slowing.

"This is a highly profitable company with a highly profitable and scalable marketplace business model," this investor said. He said he'd heard Uber's gross revenue last year was $750 million with $150 million in cash flow. Projections for 2014, this person said, were $3 billion gross revenue yielding more than $400 million in cash.

"An 8-15X EBITDA multiple range is reasonable, so being worth somewhere between $3 and $6 billion on this year's numbers, with high growth, could easily make Uber worth $10 billion on next year's numbers," says the venture capitalist. "Investors often forward pay."

Uber is not guaranteed to win and dominate the world of logistics. There are other real-time networks, like Seamless or PostMates, that could inhibit Uber's expansion plans. Multiple cities have given Uber legal trouble in an effort to protect cab companies. Competitors like Hailo, SideCar, and Lyft have popped up and gained traction.

Travis Kalanick, Uber's founder, is also somewhat volatile, which could pose problems down the road.

"I would hate to go against Travis competitively. He doesn't just want to win the space, he wants to kill Lyft," a Silicon Valley venture capitalist says.

Another investor explains that while those — Kalanick's personality included — are investment risks, they don't detract from the lofty valuation.

"Uber is winning. The government is moving in their favor rapidly, and Travis hasn't hurt Uber yet," this person says. "There is no reason it won't be a $100 billion company in the next three to five years."

Tech investor Semil Shah agrees. "Uber could most certainly go public yesterday — but why would they want to? No incentive. $100B potential company," he recently tweeted.

Henry Blodget notes that Uber on track for $10 billion in gross revenue in the next year:

http://www.businessinsider.com/uber-revenue-2014-6

That's $2 billion in net revenue since Uber keeps 20% of gross.

Confirmed. $10 billion run rate hit:

https://twitter.com/ajs/status/532959198548860928

December 2014: Uber is worth $41 billion and Baidu is investing $250 million.

http://pandawhale.com/post/55342/december-2014-uber-worth-41-billion-with-250-million-investment-by-baidu

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