Comment by quaunaut | Hacker News Reader

Comment by quaunaut | Hacker News Reader

Prepending Edit: If you're reading this and have a lot more familiarity in how investments of this kind are made, and what kinds of things these investors are thinking, I really am making this post looking for education. I didn't finish college, and don't know a lot, but I'm trying. If you'd rather not stir the pot by talking here, my e-mail is in my profile.

The one thing that makes me skeptical about this, is historical data. From what I'm seeing, the entire US Taxi/Limo market is $11bn in value. So for them to achieve this, they'd need ~80%+ market share in the US, plus a high market share in both Europe and Asia. This is a valuation that smells similar to the WhatsApp deal, where the timeline to succeeding this valuation is 15-20 years out.

Is there some data I'm missing here that implies my data(from [1] for example) is flawed? Or that maybe this isn't such an out-there valuation, by way of possible growth from ridesharing, or other avenues Uber could explore without straying too far from their primary purpose?

http://www.ibisworld.com/industry/default.aspx?indid=1951

A couple of points, without having closely looked at the Uber financing:

1) $11B is the estimate of the revenues of the US taxi & limo market. Uber aims to expand the size of that market, by drawing in people who otherwise would not have taken a taxi or limo.

2) Uber is global today, and can expand much faster than traditional T&L companies given its model. Global taxi & limo revenues are certainly higher than $11B.

3) Using $11B as the estimate of the US taxi & limo revenues, it is reasonable to assume that the market value of all US taxi & limo companies is larger than $11B. This assumption rests on the premise that if one owned all US taxi & limo services, one could generate ~$11B in cash annually. I don't know what revenue multiple is typical in this industry, but I'd be somewhat surprised to learn that it's <= 1. (Not to mention the monopoly licenses, brands, customer relationships, autos and other physical plant etc. that comes from owning these assets.)

I think UberX has the potential to become bigger than the taxi market. In the vast majority of American cities, especially in smaller ones, taxis are not readily available and are just too expensive for getting across a suburban sprawl.

The main Uber service depends on the existing market to some extent but I think it also has the potential to grow it.

> In the vast majority of American cities, especially in smaller ones, taxis are not readily available and are just too expensive for getting across a suburban sprawl.

There is a good reason for that, it's so much easier to own a car in these and is pretty much mandatory to get anything done. Cars + Gas are still relatively cheap in comparison to paying someone to come out and drive you around anytime you need to go somewhere, which is compounded in the suburbs by the distance and time involved and the area any taxi service would need to cover.

Sure, technology ala Uber helps here, but does this really change the fundamentals in theses areas? I don't think so, you still need to pay a driver and in areas where its easy and cheap to store a car it would make much more financial sense to just drive yourself around.

Driverless cars are really the fundamental shift that might change this, but let's be real that is still a risky venture, despite all the Google hype people are drooling over. This large of an evaluation only makes sense with that in mind.

Assuming your figures are correct, $11bn in annual revenue allows for a much higher valuation than $17bn. One of the main methods of valuing a company is the "multiples" approach [1], which values the company at a multiple of it's annual revenue, with the multiple typically falling between 5-15.

A commonly used multiple is the price to earnings multiple of the entire industry, which is absurdly high for major tech companies- Google, for example, has a P/E ratio of ~30 [2], and Facebook has a P/E ratio of ~80 [3]. For non-tech companies, the average ratio is roughly 15.

So if we want to use the average P/E ratio, we can say that a very very very rough price for the entire Taxi/Limo market is $150bn.

[1] http://en.wikipedia.org/wiki/Valuation_using_multiples [2] http://ycharts.com/companies/GOOG/pe_ratio [3] http://ycharts.com/companies/FB/pe_ratio

> Assuming your figures are correct, $11bn in annual revenue allows for a much higher valuation than $17bn.

[...]

> So if we want to use the average P/E ratio, we can say that a very very very rough price for the entire Taxi/Limo market is $150bn.

P/E is price/earnings ratio, it's not calculated using revenue. Earnings is revenue less expenses.

So if the taxi industry in general is operating at a 10% profit margin, that would mean they're earning $1.1bn per year, and with a P/E of 15, that would be a $16.5bn market cap.

Ah, you're absolutely right. My mistake.

Or in this case... about 100 times their revenue

There's a difference between revenue and valuation. In this[1] example of taxi companies, valuation is 3x the revenue.

And the great potential of the company will show once they find a way to offer efficient shared transportation services at much lower prices, like [2]. If they do, they'll basically swim in money.

[1]not so great but a good start :http://www.mergernetwork.com/for-sale/nations-only-publicly-...

[2]https://news.ycombinator.com/item?id=7391885

The leaked figures late last year suggested Uber was collecting around $1b in revenue through their app. It's been suggested they take around 20% of that for themselves and are doubling their revenues every six months. That suggests their revenues will probably be better than WhatsApp's (though at a higher cost) this year, and they have orders of magnitude more theoretical potential for growth.

Admittedly, that growth could be curtailed between fighting one of the most protracted and costly series of legal cases in history against an entire industry, but based on reported figures the growth arithmetic would be strongly in their favour if they win in enough jurisdictions.

And if they don't get crushed by competitors willing to operate on thinner margins because "ride-sharing" needn't veer towards monopoly, of course...

"From what I'm seeing, the entire US Taxi/Limo market is $11bn in value." That sounds incredibly low. That's twice the value of KING, and cabs are a lot bigger than Candy Crush.

Maybe you mean the market is $11bn/year in revenue (or even in profits)?

Right, it's $11bn/year in revenue, averaged over 5 years. Is that not usually used in determining the value of a given market?

Yes, but you're comparing a company (Uber) with an annual revenue number ($11B), which is one property of a market.

For comparison, Apple is currently worth around $565B, but its revenues were $176B in the last 12 months. Chipotle is worth $17B, but its revenues were $3.4B over the last 12 months.

A firm's revenue and its value are related, but usually not equal.

Before 2012 (when I started using Uber), I took a cab (outside of NYC) maybe 5 times in a year. Today, I take an uber 5 times a week. This is anecdotal but I am sure that's the market growth investors are looking at.

So is Uber 50x cheaper than taxis, or is it cheaper than your own car/pubic transport?

Note: I pay a flat monthly fee for transport (public) around £1200 a year. Trans, trams, buses.

Price is not the issue for me. It's the service quality and convenience. I used taxi's to get home from bars and I would say 50% of the time I would have a problem (card machine doesn't work, don't go to my address, won't accept 3 people). Uber eliminated the friction.

I could be wrong, but I think that's $11bn in revenue, not value. $17bn valuation for Uber makes a lot more sense with this lens -- they are rapidly accumulating a large share of that $11bn/year market.

In addition to expanding the taxi market, Uber also has great potential to expand into other transportation and logistics markets. Who is going to direct the fleets of driverless trucks hitting the road in the 2020s?

Uber could potentially expand the taxi/limo market though. Anecdotally, I know that my friends and I are willing to use Uber for trips where we would not consider a taxi.

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