
An Expert in Valuation Says Uber Is Only Worth $28B, Not $62.5B - HillaryBriss
http://www.bloomberg.com/news/articles/2016-08-17/an-expert-in-valuation-says-uber-may-have-already-peaked
======
raviparikh
In June 2014, Aswath Damodaran (the expert in valuation cited in the article)
wrote an article about how Uber should be valued at $5.9B rather than the $17B
they had just raised at: [http://fivethirtyeight.com/features/uber-isnt-
worth-17-billi...](http://fivethirtyeight.com/features/uber-isnt-
worth-17-billion/) If Damodaran's current $28B valuation is "correct," that
would imply ~26% annualized returns if you'd invested in Uber at the
"unjustified" $17B mark. Not bad. So I'd say his 2014 number missed the mark,
in retrospect.

"Expert in valuation" does not imply an ability to magically divine the "true
value" of companies. Valuation is as much subjective as it is
objective–multiple people creating DCFs for a company can come up with
different values. There's also upside (or downside) that isn't purely captured
by metrics to date.

This isn't to say that I think Uber is "truly" worth what it raised at. Just
to say that valuation isn't an exact science.

As a side note, Damodaran does have some great lectures on how to value
companies:
[https://www.youtube.com/watch?v=znmQ7oMiQrM](https://www.youtube.com/watch?v=znmQ7oMiQrM)

~~~
elsewhen
i think it's important t to keep in mind that the professor's valuation does
not include a liquidation preference or other protective provisions that
investors pay a premium for.

------
Animats
Uber isn't doing that well in terms of profits. It claims to be profitable in
the US, but without audited GAAP numbers, that's questionable. (It's easy to
be "profitable" when you get to decide what costs to count.)

Uber claims to make $0.19 per ride in the US. (Unaudited, of course) Average
number of daily Uber trips is 1 million.[2] That's $69 million a year. Ongoing
companies have a P/E ratio in the 10 to 15 range, so Uber is worth about $7bn
to $10 bn as an operating company. Anything higher than that is anticipation
of future growth. A _huge_ amount of future growth.

[1] [http://www.bloomberg.com/news/articles/2016-04-14/lyft-is-
ga...](http://www.bloomberg.com/news/articles/2016-04-14/lyft-is-gaining-on-
uber-as-it-spends-big-for-growth) [2]
[http://expandedramblings.com/index.php/uber-
statistics/](http://expandedramblings.com/index.php/uber-statistics/)

------
adventured
Good luck predicting how public shareholders will treat a company like that.
Same goes for Airbnb.

Does it really make sense that Twilio has gone up so much since its IPO? Is it
likely to crash hard back to earth in the next year? Who knows, maybe it's one
part sentiment, one part broad market euphoria, one part hitting their next
quarterly numbers, one part story, etc.

If you were to run almost any kind of reasonable attempt at analyzing and
valuing Tesla based on what it should maybe be worth via comparables, you'd
get a figure dramatically lower than it is today. Do you compare it to a solar
company? To Fiat? To GM and Ford? To Porsche? Doesn't matter, every example
gets a Tesla worth far less than it is today. Public shareholders disagree
however, they think it has a very bright future.

The same has been true of Amazon for most of its existence. Try to apply any
of Target or Walmart's valuation ratios to Amazon, and you'd have to reduce
the market cap by 3/4 at least. Should Amazon be worth 50% more than Alibaba?
Investors think Amazon is going to grow a lot yet.

Does Google's (ever slowing) growth rate really justify a PE ratio 2.5 to 3
times that of Apple? Microsoft hasn't really grown its profit level in years.
Should it have a 20 to 25 PE ratio, roughly twice that of Apple? So far as
public shareholders are concerned, these things make sense today.

So Uber is really worth $28b, not $62.5 billion? Good luck with that.

~~~
oliwaw
>If you were to run almost any kind of reasonable attempt at analyzing and
valuing Tesla based on what it should maybe be worth via comparables, you'd
get a figure dramatically lower than it is today. Do you compare it to a solar
company? To Fiat? To GM and Ford? To Porsche? Doesn't matter, every example
gets a Tesla worth far less than it is today. Public shareholders disagree
however, they think it has a very bright future.

If Tesla succeeds in finishing the Gigafactory on a reasonable timeframe and
delivering a large number of Model 3 cars by the end of this decade, why would
it be worth "far less than it is today"?

------
sfifs
One of Uber's key advantages in Europe and the US is that fares were
significantly cheaper and inventory is quite competitive than what the taxi
companies got away with through regulatory capture (medallions and like).

In developing markets like India, the taxi/auto rickshaw premium is actually
not much. I estimate that taking an auto rickshaw for my morning commute is
only 40℅ or so more expensive than driving on fuel costs alone and when you
factor in interest on car loan, insurance, maintenance etc, it would probably
be close to cost neutral.

Uber and the local competition Ola are currently premium propositions to this.
Local taxis I believe are competitive or slightly cheaper than Uber/Ola.

Sure I happily pay a premium for the comfort of pickup in an air conditioned
car etc and there will always be top 2-3℅ who will pay a premium.

But being premium priced to key competition which has much higher inventory on
the road means you can't really go after a mass market. In taking a mass
market in any industry, convenience has almost never trumped price and
availability. Everyone else I know in India who takes these cabs are also in
the 2-3℅.

Uber and Lyft have had all three in US. But price is a clear disadvantage in
India and availability vs. alternatives is currently not an advantage. I'm not
very clear what the scenario was in China but I'd not be surprised if it was
similar.

This lack of significant pricing and inventory advantage unlike US/Europe is
I'm not sure being taken into account when projecting growth prospects and
valuations.

------
meira
It can be a lot less, if what happened in China spreads to more operations.
Imo, Uber is going to fail very big.

~~~
oldmanjay
Can you expand on that? What mode of failure do you foresee?

~~~
frakkingcylons
Uber sold its Chinese operations to Didi Chuxing (a ride-sharing service made
by Chinese companies), because it couldn't gain a definitive advantage despite
spending more than a billion dollars.

------
hoodoof
These company valuations are just made up as part of the valuation ponzi
schemes.

A "valuation expert" means nothing.

------
samfisher83
Its hard to value a company without a lot of public numbers:

Even he admits here: I am relying on dribs and drabs of information that are
coming out of the existing ride sharing companies, almost all of whom are
private

Also their cash flow numbers are probably negative at the moment and future
cash flow is just a guess.

Basically valuing a business like that is throwing Darts at a board. You need
to have predicable cash flow to properly value a business.

~~~
chatmasta
I wonder how much ridership data you could infer by reverse engineering the
app and systematically querying the API. For example by looking at the rate
that cars become available/unavailable and extrapolating rides from that.

------
neilmovva
> "only worth 28B"

I feel like this statement is telling in and of itself - since when is a $28B
startup with Uber's (lack of) revenue and lasting IP considered normal?

Perhaps these numbers have yet a ways to fall.

~~~
pavlov
Uber must be doing billions in revenue, since they handle the payments on all
rides ordered through their system. They're not giving free rides after all.

~~~
honkhonkpants
That might be one way to look at it, but I doubt that is relevant. The total
money that uber handles would be equivalent to ebay's "gross merchandise
volume". The transaction takes place between the rider and the driver and uber
is only facilitating it. You wouldn't say that a credit card company has the
entire economy as its revenue, so you wouldn't say that all ride charges are
Uber's revenue.

~~~
pavlov
The rider and driver can't negotiate prices independently or pay through
another service.

Uber determines both the display price offered to the customer and the revenue
share paid to the driver, so IMO the total sum of transactions really is all
Uber's revenue.

------
kldaace
Every time I see an article like this, I wonder whether these experts have put
their money where their mouths are. I'm sure there are plenty of Uber
investors willing to take the other side of this bet, especially if you think
the company is worth less than half of its valuation. Otherwise, it makes it
hard for me to believe their opinion.

~~~
__derek__
I wonder whether you saw the article last week about how difficult it is to
actually short Uber.[1]

[1]: [http://qz.com/707947/investors-have-placed-a-one-way-bet-
on-...](http://qz.com/707947/investors-have-placed-a-one-way-bet-on-uber-
which-made-us-want-to-figure-out-a-way-to-short-it/)

~~~
kldaace
Ah thanks, I actually hadn't seen that. Maybe in the future these predictions
can be handled by some sort of betting market.

~~~
ChuckMcM
There are always proposition bets but they are generally illegal in most, if
not all, markets.

------
downandout
In my opinion, assigning a value of even $28b to an app that could be
duplicated by a single developer in under a week is probably a bad idea. Let's
remember that most of the money they've blown has not gone into capital
expenditures - there isn't a giant fleet of cars they own that could be sold
if they fail, for example. They've spent almost all of the money subsidizing
rides to win customers and drivers - both of which could leave the platform
for the next great app in a heartbeat. They have not gained any assets as a
result of their massive expenditures.

My personal opinion is that anyone investing in this company at any 10 figure
valuation - much less 11 figures - is probably poised to lose most of their
investment. We've seen through companies like Theranos how billions in
perceived value can vanish overnight when business realities and investor
expectations are mismatched. While these two companies appear to have reached
high valuations through different means - Theranos through fraud and Uber
through unprecedented hype - they may ultimately wind up in similar
situations.

~~~
harmegido
In my opinion, the key asset Uber has is their driver network. Like you say,
anyone can build a similar app pretty quickly, but who will use it if there
are no rides available? They've paid so much into user acquisition precisely
so it is more appealing for drivers to join the network.

In this light, the CMU investment makes a ton of sense. It's going to be
extremely difficult for any other competitor to get the critical mass of
drivers that makes grabbing a ride a <5min request, except in the case of
driverless cars. GM (as an example) could quickly put them out of business by
partnering with google and deploying thousands of self-driving cabs in a city
and slapping an uber-like app on it. There's no other way to get that many
drivers.

Obviously the above example is a longer-term threat, so to say that anyone can
just build an app and outcompete Uber is missing where the real value in Uber
lies.

------
swyman
Don't most reported private valuations fail the most basic smell tests? If
share rights, liquidation preferences, and seniority are homogenous, doesn't
each share need to be summed individually vs multiplying quantity * latest
senior price?

------
asher_
A "valuation expert" arguing against a straw man based on a misconception
certainly makes you wonder how much expertise they have. Raising capital from
an investor who gets preferential terms -at- a valuation is not equivalent to
saying that the company is worth that valuation. The comparison chart against
public companies is a false comparison for the same reason.

Bloomberg should know better.

------
michaelbuddy
28 billion seems a stretch, maybe 4B. How far into the future does a valuation
speculate for?

~~~
snaily
It's not uncommon to project for infinity. When using the discounted cash flow
(DCF) method you first use the current business plan to project cash flows
(discounting for the fact that future money is worth less than money right
now) for as long as you think is reasonable, sum them, then calculate some
"final value" for the company beyond the business plan.

Perhaps you think the company won't be around, so it is zero. Maybe you assume
is steady-state forever, in which case the infinite sum of discounted cash
flows turns into a geometric sum, which has a finite sum.

------
konschubert
Uber is no more than an app with little network effect.

If they start making money in a given city, a competitor can sweep in and take
the city from them. I know they are planning a monopoly on self-driving taxis.
But as of today, the valuation seems to be 3 orders of magnitude off.

~~~
acchow
> Uber is no more than an app with little network effect. > If they start
> making money in a given city, a competitor can sweep in and take the city
> from them.

Odd. I see their network effect as rather strong. Why would a driver use a new
competitor app if the customers aren't there? Why would a customer download
another app they haven't used before or heard of, especially if the rides
aren't there?

~~~
michaelbuddy
Competitors always have it easier because they can see what works and doesn't
work from original competition. Which means they can spend less and make more.
Which means they can charge less and / or pay their drivers more.

~~~
melvinmt
More competition will pretty much always cause every competitor to spend more
and make less...

See:
[https://en.wikipedia.org/wiki/Perfect_competition#/media/Fil...](https://en.wikipedia.org/wiki/Perfect_competition#/media/File:Perfect_competition_in_the_short_run_\(simple\).svg)

------
MrQuincle
Suppose Uber does not exist in 10 years, what will be its legacy?

A lot of people will tell their grandchildren that one day there was a
platform you could use to get a ride...

Valuation seems nowadays based on perceived market value. Perception is
deception.

------
mbesto
"An Expert in Valuation"

Ha, the only expert on the value of an asset is the market, because the market
alone determines what something is worth. Everything else is hogwash.

~~~
chime
And then something happens and market 'corrects' itself. Before investing, it
can be useful to know the post-market-corrected value of any asset.

