Is Uber worth $10 B?

So Bloomberg reports that Uber, a so-called Transportation Network Company is worth $10 B. Clearly I am in the wrong business.

This implies that the net present value of all future revenue from Uber minus the costs of that revenue will amount to $10B (assuming they invest the money they raise).

Nationally there are under 250,000 taxi cab drivers who earning a salary of $23,000 apiece, giving a total labor cost of $5.7 B. New York City has about  20% of US taxi cabs and NYC alone serves 241 million annual passengers. Let’s assume 1 billion taxi passengers per year nationally in the US, and $15 revenue per trip. So if Uber captures 100% of the  market, there will be $15 B in revenue per year. But that is before labor costs, which are $5.7 B, leaving $9.3B per year. (I am assuming no international profits, since urban surface transportation is highly localized, and why would any other country let a US company dominate?)

If Uber’s gets  100% of this market keeping 10% of remaining revenue for profit margin, they are plausibly worth $10B. This leaves the remaining 90% of that $9.3B to pay for the costs of fuel, maintaining the vehicle, owning the vehicle, and operating a back end app.

Currently Uber has 900 employees. I assume most of them are in the field.

Let’s just say there is a lot of “hope” and “if” in this valuation.

The Financial Times lists companies by Market Value (March 2013). The smallest company with over $10B is Chipotle. Chipotle uses 37000 employees to be worth $10B. $10B is more than Southwest Airlines, an actually profitable airline, was worth. It is about the same size as United Continental.

We have other comparisons – Mastercard is worth $63B. Which would you rather own 1/6 of Mastercard or all of Uber? UPS was worth $62B with 400,000 employees. Do you think Uber with less than 1000 employees will be more valuable than 1.6 of  UPS? FedEx was worth $31B with 278,000 employees.

Is this a bad investment for the current investors? That depends. Are there greater fools, or are they at the bottom of this pyramid?

2 thoughts on “Is Uber worth $10 B?”

  1. Couple of things:

    1) Uber doesn’t employ it’s drivers, so that employee count isn’t representative of the driver pool. They are independent contractors connected to customers by the platform.

    2) uber has launched in 100 cities – most outside the states (including where I live in Doha, Qatar). Because all it is is an app that connects drivers to customers, it is far more scalable than competing taxi services. There is no restriction to where they can deploy – all they need is to contract a local fleet and take 30% cut of all customer connections they make.

    3) It owns the most valuable part of the value chain – the connection of the customer to the service. Why do you think that Google has invested $400m into them. They know that owning that part is incredibly important, because should google ever start making driverless cars, it owns the customer connection and can easily deploy a fleet with a ready customer base.

    4) comparing it to MasterCard or UPS ignores the nature of the uber business model. They all have high capex and employee counts because they own their assets (payment infrastructure/fleet of jets and trucks etc). Uber has an app on millions of people’s phones that costs nothing to them to scale. They have to build a fleet of contractors in a new city they are deploying to, but they don’t incur significant costs to do this. They can scale faster. So, yes, I’d much prefer to own 100% of the company that owns the connection to personal mobility for millions and costs very little to maintain and scale compared to a company that has significant overheads and shrinking margins.

    But that’s just me.

    Good to ask these questions though. I didn’t get uber in the beginning – till I saw that it was a real time personal logistics firm masquerading as a taxi company.

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