Why Uber Might Well Be Worth $18 Billion
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That said, think about the possibilities that could come if one of their major backers (Google) continues to push forward with self driving vehicles. They will have excellent real time traffic data reported back through each vehicle on Waze, and a super efficient dispatch system. They could run 24/7 with electric driverless vehicles with crazy low operating costs. It could turn the entire industry on its head.
The economics would shift so drastically it wouldn't just be Uber vs taxies, it would be Uber vs does it make sense at all to even own your own vehicle. The automated vehicles could have utilization figures that are unheard of today. Why would you buy your own vehicle when you could have an automated Uber pick you up in 3 minutes for dirt cheap?
I think that time will come, probably sooner than we realize. And when it does, Uber will be positioned as the default dispatch gateway.
Here in NYC I can't imagine spending that much on taxis. Thankfully, the subway system is serviceable.
Google's driverless cars + Uber's Dispatch..
Press a button, car arrives and takes you to a location, only cost for Google/Uber is gas/car for that time which would be very low.
Google's Driverless cars + Uber's dispatch + Google Shopping Express... Fedex and UPS should be scared.
If I spent $2000 on cab fare so far, I would probably freak out a bit.
Admittedly I am only using it between the hours of 12:00 AM and 2:00 AM to get home from bars.
The temperament of drivers has been a welcome change with uberX vs cab, I had a cab ride in Boston which was suspiciously high once (2x what previous identical trips had been), and I questioned how it was calculated and the response was 'It is not my job to know how it is calculated' to which I said 'Actually that is your job', that time I did not tip.
In LA we took an UberX from Venice to Downtown, it was ~$35, cab was ~$55.
2X - 3X compared to UberX or Uber? If I recall correctly, Taxi + tip is approximately equal to UberX.
And we haven't even started on surge pricing. Uber sells itself as cheaper than a taxi, but in many ways (in NYC) it is not.
It would be nice for Uber to publish some comparative data in this regard. But I think that's not their main pitch.
They now have a fare calculator for NYC athttps://www.uber.com/cities/new-york. It is pretty broken as all my addresses end up getting mapped to Brooklyn or Queens for some reason.
But for the prices I saw, UberX is 30-50% higher than yellow cab. So my 2x-3x estimate is certainly out of date.
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Where are you getting $24,000 from? The parent to your comment said he has spent $2,000 so far this year, extrapolating that out says he might spend ~$5,000 on Uber by year end. I think the average American easily spends $5,000 on a vehicle annually. I probably spend at least half that amount just on gas.
First of all, what kind of insane person pays $5k for parking and insurance? I have a new car with fairly high rates and pay about $1,100 in insurance. My parking expenditure (yes, I live in SF) is maybe $10 a week -- we'd need to imagine a parking expenditure of about $80 a week to get my total parking plus insurance to come out to $5,000 a year. I'm sure some people pay $5k for parking and insurance -- but those people are self-evidently not cost-sensitive.
As to gas and maintenance, you obviously pay those for an Uber car just like you pay for it for your own car -- in fact, you pay more for these mileage-related costs, since the car has to drive over to you as well as drive you wherever you go. Unless the driver is operating at a loss, your fare obviously more than covers the gas and maintenance fees, ergo you're paying it. Just because you don't personally stand at the pump does not mean you aren't paying for it.
You also, just as obviously, pay the insurance costs for a ride-for-hire vehicle that you're in. Indeed, the insurance costs are probably inherently higher than the ones for your personal vehicle.
> My parking expenditure (yes, I live in SF) is maybe $10 a week
"You'd have to be insane to get the unusually low rate I get on parking!"
Please tell me this is a joke. This is as dumb as saying "I can't believe people let themselves get so ripped off on their rent: I pay $900/mo to live downtown under rent control, why don't they just do that?" For some actual data instead of nonsense like what you're saying, look at something like: http://sfbay.craigslist.org/sfc/prk/
You can't really find a parking spot for less than $250 (~$62/wk). I expected this to not be the case in some outlying areas, but it looks like you have to go all the way to Glen Park to find parking for cheaper than that. Parking that comes with rentals is cheaper (about $150/mo generally), but not everyone has that option and I'm sure you agree that it's idiotic to say that you have to be "insane" to happen to live somewhere that doesn't come with a parking spot option. Either way, parking is 3-5x what you seem to think it is.
> As to gas and maintenance, you obviously pay those for an Uber car just like you pay for it for your own car -- in fact, you pay more for these mileage-related costs, since the car has to drive over to you as well as drive you wherever you go.
Your math is wayyyyy off here. You pay a minuscule fraction of the insurance costs for an Uber: largely because you're paying in proportion to your usage, and all the times that the car is parked or picking up other fares is not your responsibility to pay for. By contrast, even if you drive the exact same amount you would've Uber'ed, you don't get to tell the insurance company "I only drove 3 out of every 24 hrs this week, so I'm going to pay you 1/8 the premium". TL;DR for this paragraph: You seem to be completely forgetting the fact that insurance (and maintenance) related costs are driven down by increased utilization, and almost by definition an Uber has infinitely higher utilization than an owned car.
If you want to spend thousands of dollars a year on unnecessary parking expenses for the dubious convenience of having a car downtown, hey, more power to you. But you clearly are not very driven by cost-consciousness.
No meaningful fraction of your insurance costs for your car cover the time it is parked, because your car is not meaningfully at risk when it is parked. You do, in fact, tell your insurance company how much you drive your car when you pick up your insurance. You don't get to do this on a week-by-week basis because of transactional costs[1], but it's part of the standard form you filled out when you got your insurance. Uber drivers need to carry much more, and more expensive, insurance than you do due to the fact that they drive much more (and routinely have strangers in their cars).
I can't imagine how you think that maintenance costs are driven down by driving more. Is it your contention that driving more makes your car work better?
[1] Actually, I think that some insurance companies are experimenting with monitoring devices in cars that give you a lower rate, so maybe this is becoming more possible. But I'm not at all familiar with the details.
Parking varies widely, the last time I had a parking garage subscription in Cambridge (MA), it was ~$130/month.
Gas, insurance, simple parking and a couple of oil changes gets me very close to $5,000 easily.
The relative insurance and maintenance prices rolled in the Uber price vs. private vehicle costs don't really matter. All that matters is out of pocket dollars. Sure, you might be paying an effective insurance rate on the Uber of 2x your private insurance cost, but unlike private insurance which you pay for 24/7/365 (effectively), you're only paying the insurance cost to Uber when you're actually riding. So, it can very easily work out in your favor even if some of the unit costs seem abnormally high.
I don't think you can make a compelling case for a taxi service vs car ownership based on cost -- but rather convenience.
[1] http://www.consumerreports.org/cro/2012/12/what-that-car-rea... [2] http://www.edmunds.com/toyota/prius/2012/tco.html?style=1014... [3] http://www.investopedia.com/articles/pf/08/cost-car-ownershi... [4] http://sfbay.craigslist.org/sfc/prk/
I owned my previous car for 7 years. It depreciated $11,000 during that time. That's $1,571/year I'd need to add to my cost.
Say I spent 1 billion dollars paying someone to create a new Uber app and the necessary infrastructure. I'm quite confident that for 1 BILLION DOLLARS that could be recreated.
Then say I spent 16 billion dollars on advertising. With world advertising budget of around 500 billion per year, that means that 3 out of every hundred TV ads would be for my new company. 3 out of every hundred online banners. 3 out of every hundred posters on the side of a bus. And that's world-wide (if I focused just on the US with a market around $150B it would be nearly 10% of all ads everywhere).
It would be the most talked-about company anywhere. I think this company would blow Uber away. And it is still a BILLION dollars cheaper.
That is the trouble with these absurdly high valuations -- to compare fairly you have to consider what ELSE could be done with that money, and multiple billions of dollars could do an awful lot.
That's what I think is missing with Uber's business plan: network effect. There is literally nothing preventing another company entering the market and undercutting Uber's prices, benefiting both customer and taxi drivers. I.e. there's no way Uber's margins can stay so high.
But Uber has the cash. So you keep hearing about them because of their PR spend. So now Uber has to buy up the competition, or try and beat free.
Which is why I think they need more money. It's more money (not sure how much will be enough), or all the investors lose.
However, when we are talking about $1 billion in funding that can be ripped apart pretty easily.
What I'm saying is, if you as a passenger create your own approved driver's list network, you could get the same services much cheaper.
I think that a company which wishes to invest should always compare to the price of a green-field investment. If someone were purchasing Uber for $18 billion, they should do so only if it would be more effective then dumping 18 billion into a green-field startup. If someone is investing by purchasing some shares at an $18 billion valuation then the comparison is slightly harder: own 100% of a startup with a much lower investment or x% of the market leader.
The comparison is now always trivial, but I think that anyone looking at these sorts of investments needs to be doing this comparison before spending the money.
Whether it's the stock market or PE or VC, investing is not a bet on what currently exists but what you think the future will hold. The numbers that exist are generally priced in already. Yes, fundraising is frothy right now but you're still talking about tons and tons of money and relatively sophisticated investors. It's not like they haven't run these same numbers.
Uber is a quality 10 billion dollar company, it isn't worth anything close to 18 billion.
That 90k to 30k figure for instance? http://betabeat.com/2014/05/new-york-city-taxi-medallion-man...
They don't pay the $.50 per trip tax or buying the taxi medallions which lease ~$2,500/month. http://www.businessweek.com/articles/2014-02-28/if-uber-is-k...
Mysteriously, if Uber had to spend $35k+ [or eat a one time capital expenditure of 6-7 figures per driver] more a driver, I suspect people would be thinking the $18 billion valuation was ludicrous. And realistically, since they act as a taxi service, that is what they would be paying in markets like SF, NY, etc.
They clearly would have a competitive advantage in the range of $25k/driver + taxi company like margins, but does that really justify an 18 billion dollar valuation even if you tack on a courier service?
It's also somewhat rosy to think that Uber will eat the entire market. I'm not sure an 18B valuation makes sense. Maybe a few billion, but not 18.
(I say this as someone who drives for Uber - and Lyft)
I think its worth around 10 billion [which is where the original article said VC's started dropping out of the auction en masse].
Regulations governing licensing, employee welfare, public liability, and other such, which Uber currently works around (but might not be able to indefinitely, people are looking very carefully at the situation).
Even ignoring this difference, UPS might not consider the profit margin worth the risk and the cost of the up-front infrastructure changes.
To get to this point however does require it to start operating its own fleet (unless small regional companies form to manage the fleet and just loan out their self driving cars to uber). Either way Uber is in a good position. If it manages its own fleet, it can better negotiate the price of each car than any individual can. It will also have more data than anyone else on how those vehicles operate and can then buy it's own insurance for its entire fleet, cutting costs there. If the alternative occurs, then Uber will own the buy side of the market and have most of the leverage relative to local companies that manage their own fleet.
There are a lot of ways things can pan out, but being the most tech focused of these companies with the best engineers of any of these types of companies, puts it in the best position to own the self-driving car future. The only company better positioned is probably google.
The cost of capital acquisition and debt service is a massive barrier to rapid growth and thus multiples/valuation. If a main attribute of Uber is that they run a taxi fleet and its workforce while offloading the expense of owning and maintaining one -- much like Airbnb is a lodging chain that doesn't have to bankroll any real estate -- then that's kind of the point of the model.
The idea that changing that fundamental business advantage is the "real" goal seems unpersuasive to me. People who drive cars are likely to be more efficient economically than a self-driving computer for decades at least, if not longer.
Anything that you need to pay for has a chink in the network effect armor. All a competitor needs to do is price cheaper and all your users will flock to them.
Tech companies survive on fat margins, but I think this industry is heading the other way.
To me, the prospect of sitting in half-dried vomit in the back of a 10 year old former police cruiser isn't very appealing. Uber makes it approachable for people like me -- I'd rather have a pleasant ride to the airport or train station than deal with parking or inconveniencing my wife for rides.