Uber Proposals Value It at $120B in Possible 2019 IPO | Hacker News Reader

Uber Proposals Value It at $120B in Possible 2019 IPO

wsj.com

120 pointsbko96 comments

Softbank just took a huge stake in Uber at beginning of 2018

The valuation numbers have yoyo'd up to 120billion despite

'....The deal includes a large purchase of shares from existing Uber investors and employees at a discounted valuation for the company of $48 billion, a 30 percent drop from Uber’s most recent valuation of $68 billion. These secondary stock sales will be completed by the end of the day Thursday on the Nasdaq Private Market, an Uber spokesman said'.

https://www.reuters.com/article/us-uber-softbank-tender/soft...

We've gone from a damaged company worth 48b in January to a 120b valuation in a few months. Presumably the Saudi and Japanese softbank investors are hoping to extract an ipo profit.

> Presumably the Saudi and Japanese softbank investors are hoping to extract an ipo profit.

Greater fool theory?

Not all the money in Uber is dumb. Early investors like Benchmark and GV had an exit opportunity when the Softbank deal was being negotiated, but none of them took it.

But the early investors are less sensitive to the higher valuation volitity. I doubt GV really cares if the valuation is 59B or 100B. They were in early enough, that I suspect they’ll make a heavy profit regardless. It would be interesting to know if the final IPO values higher or lower than what SoftBank would have been offering, but even if Uber ends up lower, I’m sure there is relatively low risk to early investors.

I’d love to know the actual numbers though.

> I doubt GV really cares if the valuation is 59B or 100B

There is no VC that doesn't care about a 70% difference in returns.

Disclaimer: I know none of these numbers...

Let's say that GV had the opportunity to sell to SoftBank at a valuation of 50B. Let's just guess that they would getting a 500X return. Maybe they invested 1M early at a 10M valuation and got diluted to ~1% ownership. So 1% of 50B is 500M on a 1M investment.

This is a great return for them. Congrats to all involved.

But this could be considered something of a low-end valuation. Maybe it's more... maybe Uber can IPO at a 100B valuation. The difference between a 500X and 1000X exit is huge, but risky. Maybe they end up IPO'ing at only a 40B valuation. GV would still have a 400X exit. This is the risk GV would have to gauge.

Now, if you're one of the later investors and spent 100M for 1%, then the (respective) numbers would be 5X (500M for a 100M investment), 10X, and 4X. For an late round investment like this, you may chose to exit at a locked in 5X, deeming the risk of a 4X exit too great.

Thus my comment that earlier round investors would be less sensitive to whatever the ultimate IPO valuation is. A 400X exit would make a fund. A 4X exit, while good, isn't great.

Again, I don't know the numbers and I suspect they are all significantly higher. I picked numbers that made the math easier. I also don't know who ultimately ended up cashing out (or when). So really, this is all speculation. But if anyone has the numbers, I'd love to know them!

Private transactions may not be a very good measure of valuation.

Remember that just because a few shares change hands at $X, doesn't mean that supply/demand puts them all at that price.

Insiders might be more inclined to sell some off, there could be special terms, yada yada.

Agreed. The shares sold in the secondary offering were likely shares of common stock, whereas the last round of funding would have been a sale of preferred stock.

I would expect there to be a natural discount off the preferred valuation since the common stock doesn’t have the same downside protection. A 20-30% discount would not be at all unusual in my experience.

What is this "downside risk" that exists for common stock and not preferred stock?

Liquidation preference is one. Basically holders of the preferred stock get to cash out first and common stock holders get whatever’s left. In case of an exit at a lower than before valuation, for example, it’s not unusual for common stock to lose most (or all) of its value.

The Venture Deals book is really insightful on this (and general startup financing) subject.

https://www.feld.com/archives/2016/10/venture-deals-third-ed... This book? Thank you

Yes.

Basically it’s the “you’re just an employee” risk of startups.

A non employee investing 100k in your company is clearly contributing more than a full time employee being paid in RSUs, so when the company gets liquidated (eg statistics happens) they will get paid back, whereas your employees don’t.

Alternatively, the company might sell enough preferred stock to VCs to give them majority voting rights, and they can then devalue the common stock and sell the company with none of the proceeds going to common stock.

Or your company never goes public, but common stock comes with rules against selling it on private markets, so it can functionally be treated as being worth $0. Or of course (because you can’t sell it) the company can impact clawbacks without you even doing anything wrong.

Of course I’m not saying that all startups do that, just that that can happen (and I believe all of the above have happened).

That’s part of why I will never work at a startup, though not necessarily by choice: many HN people have claimed told me on many occasions that it is unreasonable for me to expect to get fair compensation from a startup. Shrug.

Anyway, for other people who are willing to take the risk of a $0 return from a company selling at a profit, I would strongly recommend having a lawyer look at your contract to verify none of the more egregious failings listed above can happen, and remember that stock compensation is worthless if you cannot sell it.

> A non employee investing 100k in your company is clearly contributing more than a full time employee being paid in RSUs

How do you figure?

I think they were being sarcastic

correct, I had thought in this context at least it was obvious :)

I was being sarcastic, largely because people on HN have vigorously opposed my assessment that time working for a startup at below market rates is fundamentally the investment of money in that startup.

So at minimum every "employee" working for a startup is investing (market rate - actual rate) dollars in that startup. That's also not super equivalent because time investments (and standard employment contracts) mean that there is an absolute opportunity cost to working for a startup that does not match a cash investment. Essentially you can invest money in multiple companies at a time, you can't invest time repeatedly.

It's not just the type of share - a single bid/buy transaction does not necessarily reflect the value of the rest of the shares.

Saudis need to park tons of cash somewhere. They might be willing to pay a premium for the safety of an American company. A hedge fund may not.

Valuation of a company by using a small sample transaction is always a roughshod thing.

I cannot recall any instances though for hot issues of public shares trading less on IPO than the private

This will not end well, for anyone.

except Lyft

Toyota invested $500M in Uber in late August at a $72B valuation [1]

[1] https://www.cnbc.com/2018/08/27/toyota-to-invest-500-million...

>We've gone from a damaged company worth 48b in January to a 120b valuation in a few months.

I remember some here were ragging on Softbank for overpaying in their Uber investment just a few months ago. Amazing how a few months can change things.

> Presumably the Saudi and Japanese softbank investors are hoping to extract an ipo profit.

I don't think they bought in for a quick profit. These guys buy in for info and influence. But nearly a 200% appreciation ( if the valuation holds and if they IPO ) in a year has to be tempting.

Yes, they have a big user base but the biggest concern for me as an investor would be can they increase prices without losing users. I believe Uber customers are very price sensitive and on top of that the self driving division was shut down so their costs won't go lower any time soon. So how will this business generate billions of dollars in profit?

>> So how will this business generate billions of dollars in profit?

It doesn't. At least, not from people paying for rides. I suspect Uber will have to start leveraging their passengers. Either they are going to start hitting them with ads, as taxis have done for years, or become yet another source of consumer data.

I imagine a possible nightmare scenario whereby Uber starts charging people other than passengers. Venues such as nightclubs could be asked to contribute else their customer base not get rides home.

I saw a troubling portrayal of Uber's value the other day that had very little to do with people paying for rides. The gist was, Uber has fine-level logistical detail on millions of business people including where they live, work, eat, drink, take meetings -- Often tied to corporate email addresses.

So what's the value of knowing that some SVP at Google is taking several meetings at some company? Or which of Amazon's HQ2 team are traveling out of which airports to city halls across the country? I'm sure there's marketing value to knowing that a random 30-something likes to get burritos on the way home from the bar, but there's a ton of really valuable info buried in ride histories.

That could happen, but then I'd imagine they'd be sued out of existence.

Word gets around. As soon as anyone catches wind of this, there will be headlines in every newspaper, and any company with something to hide will prevent employees from using it.

Wouldn't fly in Europe, either.

Uber has not shut down their self-driving division[1]

1. https://www.nytimes.com/2018/08/19/technology/uber-self-driv...

they shut down the self driving trucks only correct?

Correct!

Especially now that you can open up Google Maps, get directions to a destination and then immediately get price estimates across Uber and Lyft and book a ride. Looks like a commodity, price-consciousness business very similar to the airlines.

They have been potentially "IPO"ing for 4 years. Until they announce it formally I don't believe any reports.

What? TK was very vocally opposed to IPOing while he was CEO. Uber has publicly stated that it is targeting 2019 for an IPO, and in fact that was a condition as part of Softbank's recent investment. https://www.investopedia.com/news/uber-will-ipo-2019/

These proposals are just advertising for the firms trying to win the IPO deal as they try to one-up each other to predict the largest valuations. It's basically meaningless.

If I understand IPOs correctly, I don't think that's true. Underwriting firms are left holding the bag if they overprice a stock, so it is not in their interest to overvalue it during an IPO. Further, if the price is too high, they'll cool down enthusiasm for the stock, and depress the price.

this is just a proposal, the firms can walk the number down later, it's in their favor to put up a high number so that they get free advertising (like this) and a better chance at winning the IPO mandate

In theory that's how it should work if there was internal firewalls. In reality the brokers at the investment banks will shill the IPO to their undesirable clients as a way to get it off the books, or at least that's what they usually do.

I think you understand IPOs correctly, but you missed the bit where this isn't an IPO.

This is the bit where some firms say "hey, at some point in the future you should totally sell yourself through us, we think you're very likely totally probably worth a zillion dollars".

And then at some point in the future Uber will actually do an IPO with one of these banks, and the underwriters will price the stock at whatever level they're confident they can clear the shares, and it will be a lot less than $120 billion, and Uber will say "what happened, you said you thought we were worth a zillion dollars!", and the banks will cough and shuffle their feet, and tell some white lies, and blame the economic cycles and sunspots and the lack of vision of the institutional investors who bought the bulk of the shares.

But the reality is, nobody thinks Uber is worth $120B, and nobody (least of all Uber) should take the headline as suggesting that someone does. The $120B number is meaningless, it's just flattery to try and convince Uber to go with them for the IPO, where actual numbers will have to be pulled out of a hat.

Very much the opposite. Firms will overprice a stock hold it up for a few weeks by creating an area of support (buying) and then dump the shares to joe six pack until they don't need to prop it up.

This would be a kind-of-astoundingly-to-me positive valuation for Uber. If they can get it, they'll have proved a lot of the haters (like me) wrong over the last few years.

No, that won't prove the haters wrong. It will prove the haters wrong if Uber can not only IPO but not crater thereafter.

I mean. If they briefly touch $120B at 10am on their opening day and then sanity prevails and they close trading at $20B, sure, I reserve the right to crow about how I was an Uber skeptic before Uber skepticism was cool.

But if they spend a few weeks at $120B and then cool off to $90B, or even $60B, then I should and will eat that crow.

Why should you eat crow?

Opening weeks of an IPO is usually a frenzy until rationality returns, no?

Because aetherson's definition of sanity is 20B. If the stock is 60b after 6 months, then crow eating is not totally unfair.

General employee lockup [1] ends at 6 months usually. A tank right before/at that time could signal what the insiders think and the long term prospects in general.

[1]: https://www.investopedia.com/ask/answer/12/ipo-lockup-period...

Most relevant info here has to be how banks are thinking about the current market and climate of IPOs. Seems like the view is that market conditions haven't really changed, even with recent market jitters. Will be interesting to see how this perception holds through to the actual IPO date next year.

I'm amazed because it implies positive free cash flow in the billions which, last I heard, Uber did not have.

Barring some major turn around, or increase in competitive advantage, my guess would be that there are a lot of people that want to get their money out before the whole thing implodes.

There seems to have been a general uptick in mainstream media warnings of a recession recently. For example the Economist cover last week: “how bad will the next recession be”. I’m not an expert I hasten to add, but before 2008 I also noticed this slow ratcheting up of the focus ahead of the final blow-up. I realise this could be a very biased viewpoint, it’s only a datapoint, but it makes me wonder, if you could track google search terms related to recession over time or appearances in the press, would this be a predictor of actual sentiment and impending recession?

I also wonder if there is a generalized impending sense of doom and investors feeling like they need to exit ahead of a crash.

I just checked google trends, and a very superficial look suggests an upwards trend line over the last 5 years.

https://trends.google.com/trends/explore?date=today%205-y&ge...

Mainstream media has never accurately predicted a crash. In fact, the news articles are great indicators that things will keep going up for at least a year or two.

$120bn eh?

Their recent results were:

> adjusted losses before interest, tax, depreciation and amortisation of $404m for the three months to the end of June

> revenue ticking up 8pc quarter-on-quarter to $2.7bn

There would have to be quite an improvement to justify that. I guess if revenue went 20bn/yr and they made $5bn on that it might look ok.

Seems the bull case is they use their position to dominate taxis, delivery, logistics and similar https://www.quora.com/What-justifies-Uber%E2%80%99s-70B-valu...

On the downside Waymo seems ahead on the self driving thing with actual driverless taxis supposed to be rolling around Phoenix shortly https://arstechnica.com/cars/2018/10/waymo-wont-have-to-prov...

>On the downside Waymo seems ahead on the self driving

Once that Driverless Taxi Start real world testing and Waymo gets more Data, it will likely grow at a rate Uber can never catch up.

It'll be interesting to see how the new "ride sharing" economy of scooters and bikes impacts their bottom line. The scooters are very popular in SF so far and Uber recently launched in Santa Monica. Seems like a more scalable way to get into cities and not rely on a driver infrastructure.

Anyone have any idea of the ROI of a scooter so far?

The scooters and bikes are a complete nuisance in my city. The companies littered almost every intersection with 4-8 scooters. I don't see the bikes as much anymore, other than stolen ones that every homeless person seems to have now. I have seen a total of 3 people riding the scooters ever. They are often tipped over into the sidewalk or into the bike lane or roadway. You can go into certain parts of town and it literally looks like all sidewalk space has been surrended to parking lots for these bikes and scooters.

This was my impression when I went to Santa Monica/Venice last December and I had to step over an unused Bird scooter every 3rd step. But recently I was in Atlanta and they are hugely popular there. Everyone from little kids to office workers with helmets on were using them. I wish they were in my city, seems like an awesome way to travel <10 blocks. I'll be going to LA and Atlanta both fairly soon and will def give the scooters a try.

ehh last december might have been too early, to be fair. These days I see people using the scooters almost every time I go outside

Even in places like Santa Monica where you have the rich people complaining about nuisance they will still be popular because they're a reliable form of green transportation.

It's kind of hilarious to hear this kind of complaint when 10x or more space is taken up with car parking space.

Indeed. We got so used to cars that it feels "normal". However car kills tons of people (especially pedestrians within cities), take tons of space and are much more loud. But somehow, we are worried about those scooters.

Cost of a scooter is very conservatively $300 At $2 a ride, 10 rides a day, you earn that back in 2 weeks.

Retail cost of the scooters is ~$600. They're probably getting a discount but I doubt it's 50%. No idea about the actual ride volume. Not that this changes your numbers that much, but just adding some context.

I got a Xiaomi scooter for $305 directly from them as part of a 10 scooter order (including shipping costs). Bird and Lyft both use these exact scooters. I'm sure they are getting a better deal than I did, but the tariffs have since kicked in so $300 is probably right on the money.

the difference between wholesale and retail pricing is usually 50%, its called "keystone pricing".

I have done some pencil math about the unit economics of these scooters a few times but I have to guess at usage rates, attrition, permit fees, and labor costs. I want to write out my reasoning here so I can share my thinking.

I assume the cost of a scooter when factoring in shipping is around $300, but you have to add the cost of modifications (GPS, stickers, software) and shipping to the final destination so lets call it $400 because that's round but probably a little low. How long does it take to earn back that $400?

The ride-rate is about 5 times a day with lets say a $2.50 price tag on average https://qz.com/1325064/scooters-might-actually-have-good-uni...

There are costs to keeping the scooters active. Bird pays $5 a scooter minimum to charge them every night and I would estimate another $2 per scooter per day in permit fees based on Bird offering $1 a day.

That's (5 rides/day * $2.50/ride - $7/day) * x days = $400 or about a 73 days for a scooter to earn back it's cost. Anything on top of that pays overhead. 1% attrition per-day (a guess) would mean a 100 day life-span, so $150 profit on a $400 investment in under 3 months.

My model starts to indicate they'd lose money when the ride-rate drops, daily labor costs rise, or the attrition rises, but I basically guessed at all of those.

You can play with the variables but it is easy to see how the scooters can make money, or how they can fail.

I also think if the scooters really catch on, people will buy them like bikes and put pressure on the price of rides.

If the ride rate drops, it probably won't be that harmful, because less milage will occur per day. You won't get your return as fast, but you'll still get your return unless vandalism is a big part of the that cycle rate.

Lyft also announced IPO plans on a similar timeline shortly after and Postmates just did too.

seems oddly convenient given all the free money drying up from fed rate hikes

They are lying to you.

https://news.ycombinator.com/item?id=12657116

Maybe post ipo they can fix their basic navigation features. If you book a ride and it says northeast corner it will always be Southwest corner. Drivers admit this and barely use Ubers navigation. They use Google maps.

as an occasional uber driver and sometimes passenger I have to say while it has its moments when Uber is most convenient and cheap option there is nothing super amazing about this company or their product. Drivers are unhappy about worsening pay (uber keeps bigger cuts), riders are unhappy about worsening qualify of cars/drivers while uber still has not reached profitability. I would not bet the house on ubers ipo. may as well go the Groupon route

how much money will a software engineer at Uber make, if this IPO goes through?

18 year cycle confirmed.

Split between drivers, this is $750,000/driver.

I get that Uber has a massive footprint, but given that they've never turned a profit in their entire company history, I don't understand how they can be worth this much...

It is all about growth is why.

That's true of a product company. But if your product is an app for taxi drivers to use... it's not a 750k per employee product.

Perhaps if they had self driving taxis....

They are profitable in many cities, they basically just reinvest 100% of profits in geographic expansion. Amazon did the same thing, and investors said the same thing, and look how that turned out.

Is there a term for costs that are purely associated with growth and not regular operations?

For example, research and development on new products/features, expansion of manufacturing capabilities, building new offices, etc.?

I frequently see people talk about X corporation not being profitable, but the claim is often extremely short-sighted as they ignore money being spent on growth and development. Ever dollar kept as "profit" is money not being spent on growth, which is huge when your company is still growing.

“Capital costs” are probably what you are looking for.

It’s tough to tell without guidance directly from the company.

For sure internally they have some sort of calculation for “If we ceased all growth activities and maximized our pricing power and minimized our costs, how much cash could we bring in over the next x years?”

Not sure where you got those numbers from.

These articles quote the number of active drivers at 1.5-3 million (end of 2017), which would come out to 40k-80k per driver

http://www.businessofapps.com/data/uber-statistics/#3 https://therideshareguy.com/how-many-uber-drivers-are-there/

Depends on how you define "active driver." 3 million "active drivers" who drive 100 hours a year on average (instead of 2000) would come out to $750K per full-time driver.

The problem with Uber is, that it's only really successful in North America. It's heavily restricted in almost entire Europe[1], and lags behind many regional providers, such as Taxify, where it's not. Uber's only real international win is huge stakes in Didi Chuxing, Grab, and Yandex Taxi. But it's not like the entire world is using Uber, or ever will.

[1] https://www.washingtonpost.com/news/worldviews/wp/2017/11/10... (see the map)

Offtopic, but that's one of the worst ways to do map legends I've seen. It reads like this:

- Pink: restricted

- Red: banned

- Dark blue: Iceland

> The problem with Uber is, that it's only really successful in North America

Uber could easily justify a $120 billion valuation by dominating American urban car transport. The big question is whether they'll be able to (a) dominate while (b) staying profitable.

What competitive advantage does Uber have over other companies? At least in my country, ride hailing companies are treated like taxis, and people switch instantly to the one that offers a better deal in town.

> What competitive advantage does Uber have over other companies?

Local network effects. Kalanick's strategic mistake was assuming network effects in New York create network effects in Hanoi. They don't, apart from cash.

But in New York, there are more drivers on Uber than other services. Which brings more riders. Which brings more drivers. Et cetera.

I tend to dislike them because of their past but I'll defend with a thought about their roadmap.

With their current business model, I don't think they have it in the bag. They don't have much that other ride shares don't.

But I think that if they had the infrastructure built out to support their current model for the whole country, they would be the only company capable of being the software side of autonomous vehicles. Or, at least, the best positioned company to win that contract.

I think that transportation itself is big enough to warrant such a big valuation. So I think their competitive advantage will be built over time and, right now, it's not anything sustainable by replacing taxis.

Of course, once someone wins the race, maybe we won't need anymore clones since the cost/transaction will reach a good equilibrium for everyone. Then they can build a different type of sustainable competitive advantage.

> What competitive advantage does Uber have over other companies?

At least a few years ago: A willingness to break the law and then throw money at lobbyists and lawyers to change the policy.

> then throw money at lobbyists and lawyers to change the policy.

But when they changed the local taxi laws/policies, they opened the doors to all ride sharing competitors as well, didn't they? If so that wouldn't necessarily count as a competitive advantage, more of a cost of entry to the market.

This is not even accurate: the service is incredibly popular in Middle East, Latin America and India [1] and is both popular and legally permitted in London as of June 2018 [2]. The article you've linked is almost a year old and out of date.

[1] https://www.recode.net/2018/3/26/17164388/ubers-southeast-as... [2] https://www.bbc.com/news/business-44612837

Middle East has Careem. Uber is not nearly as popular.

> This is not even accurate: the service is incredibly popular in Middle East, Latin America and India [1]

That's not what your source claims. It says, that these are the only big markets in which Uber still has a chance to succeed after retreating from China, Russia, and South East Asia.

> The article you've linked is almost a year old and out of date.

I linked to the map of the continent, not to a case of a single city. But your own source states, how many problems Uber faces even in London:

> Uber has now been awarded a licence but it has been put on probation for 15 months.

> So Uber is now free to continue operating in a very important market - but on probation with Transport for London watching its every move.

If you read my source, you'll see that it does support my argument:

>Indeed, India is a vast market that accounts for 10 percent of Uber’s trips with 10 million rides a week, so ceding ground there will be undoubtedly damaging to the company.

>“India is a key component of our growth plan,” Khosrowshahi told the Economic Times during a recent trip to India. “If you look at the market, it’s one of our healthiest markets in terms of growth rates.”

>In Latin America, the company has seen incredible success as the region quickly became its fastest growing.

In India, there might be no Uber left very soon[1]:

> This rivalry has been less welcome to Japanese technology giant SoftBank, which holds large stakes in both Uber and Ola. Encouraged by their common shareholder, the pair have held talks on a potential merger, according to people with direct knowledge of the discussions. That move would create a business controlling almost the entire Indian ride-hailing market, which last year had revenue of at least $2.1bn, according to RedSeer Consulting.

The same will probably happen in Latin America, where Didi bought 99 taxis, a Brazilian-based ride hailing company that it is specifically focused on dominating the region[2].

In the long run, I expect Uber as a brand to exist only in English-speaking markets.

[1] https://www.ft.com/content/af3aab5c-52d6-11e8-b3ee-41e020920...

[2] https://www.bloomberg.com/news/articles/2018-01-03/didi-buys...

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