New Uber Funding Round Could Value the Company at $25B(recode.net)
recode.net
New Uber Funding Round Could Value the Company at $25B
http://recode.net/2014/11/07/new-uber-funding-round-could-value-the-company-at-25-billion/
47 comments
The Uber article that you referred to as Nate Silver is not actually by him. Its by Ashwath Damodaran (The NYU corp finance prof)
http://fivethirtyeight.com/features/uber-isnt-worth-17-billi...
His basic assumption was to use the taxi market as the total addressable market (TAM)
Bill Gurley, a VC from Benchmark and one of the investors in Uber, lays out alternative scenarios for TAM including going after car ownership. http://abovethecrowd.com/2014/07/11/how-to-miss-by-a-mile-an...
Damodaran's response to Gurley concedes its probable/plausible/possible for uber to get into non-Taxi and larger markets: http://aswathdamodaran.blogspot.in/2014/07/possible-plausibl...
Bottom line: the optionality of uber going into these larger markets is what is driving these valuations
http://fivethirtyeight.com/features/uber-isnt-worth-17-billi...
His basic assumption was to use the taxi market as the total addressable market (TAM)
Bill Gurley, a VC from Benchmark and one of the investors in Uber, lays out alternative scenarios for TAM including going after car ownership. http://abovethecrowd.com/2014/07/11/how-to-miss-by-a-mile-an...
Damodaran's response to Gurley concedes its probable/plausible/possible for uber to get into non-Taxi and larger markets: http://aswathdamodaran.blogspot.in/2014/07/possible-plausibl...
Bottom line: the optionality of uber going into these larger markets is what is driving these valuations
Anecdotal support; Uber is keeping me from purchasing a car. I have an inexpensive motorcycle that handles 95% of my rapid transportation needs, and I try to live in areas where walking or mass transportation solve my "slow transportation" needs. I use Uber for all the edge cases where walking or motorcycling doesn't cut it, and I cannot see any scenario where I'd prefer to own a car and drive myself compared to the ease and reliability I have experienced with the service so far. Maybe Uber won't be the king of the hill when the dust settles, but so-called "ride sharing" services absolutely are taking dollars that would otherwise go into purchasing a vehicle, a much larger market.
Important to note you haven't given up vehicle ownership though. You just haven't switched types of ownership. Uber needs to be more than your 5% edge cases if we're talking about disrupting ownership habits.
Bill Gurley's post is very interesting and in-depth. One thing he doesn't mention is the potential of UberPool(combining multiple passenger trips into a single car) to further increase demand. I wonder why is that ?
Regarding mistaken authorship: whoops, sorry. That was inattentive on my part.
I also like to keep in mind that investors who purchase a percentage stake in the company valuing a company at 25 Billion probably have favorable terms and preferred stock such that they will make money even if Uber goes through a liquidation event at less than that amount.
I see Uber being a 10 Billion dollar company without any problem.
I see Uber being a 10 Billion dollar company without any problem.
How?
Aren't they 1) basically facing a serious organized labor problem once they become actually legal, and 2) 5-10 years away from being made irrelevant by autonomous technology?
Aren't they 1) basically facing a serious organized labor problem once they become actually legal, and 2) 5-10 years away from being made irrelevant by autonomous technology?
I think they're 5-10 years away from having a solution to their organised labour problem
Well there's a big issue here.
If they have labourers, they're 5-10 years away from an end to their problem. If they have organized labourers, they're 5-10 years away from their end.
Uber is facing union efforts. If they go through, Uber will end in 5-10 years. Autonamous transit will deploy far faster than Uber will be able to shirk off any unionized labour.
If they get unionized labour, their first attempt to implement autonanous vehicles will lead to a strike, meaning a competitor can swoop in and replace them.
If they have labourers, they're 5-10 years away from an end to their problem. If they have organized labourers, they're 5-10 years away from their end.
Uber is facing union efforts. If they go through, Uber will end in 5-10 years. Autonamous transit will deploy far faster than Uber will be able to shirk off any unionized labour.
If they get unionized labour, their first attempt to implement autonanous vehicles will lead to a strike, meaning a competitor can swoop in and replace them.
Autonomous transit will not deploy in 5-10 years, I guarantee you.
> If they have organized labourers, they're 5-10 years away from their end.
Ignoring the self-driving car bit, how does unionization of drivers end Uber?
Ignoring the self-driving car bit, how does unionization of drivers end Uber?
Wouldn't a software-laden self-driven car also eliminate the need for a dispatching company?
This is difficult to say, and (in my opinion) largely depends on the price of self-driving cars.
If Self-driving cars become available but are unaffordable (due to very expensive equipment onboard), Uber will be in an excellent position to make an investment in these cars where the average taxpayer will not.
Uber will then be rid of it's largest cost, human drivers. They will have the dispatch system in place to organize their self-driving vehicles and will be able to offer their service at an incredibly low price compared to the price of buying a self-driving car. Uber looks at a massive upside.
If self-driving cars are offered affordably, Uber can still offer it's services way cheaper and nothing changes on the consumer side. People still have cars. Theoretically, the demand for their service would still increase.
If Self-driving cars become available but are unaffordable (due to very expensive equipment onboard), Uber will be in an excellent position to make an investment in these cars where the average taxpayer will not.
Uber will then be rid of it's largest cost, human drivers. They will have the dispatch system in place to organize their self-driving vehicles and will be able to offer their service at an incredibly low price compared to the price of buying a self-driving car. Uber looks at a massive upside.
If self-driving cars are offered affordably, Uber can still offer it's services way cheaper and nothing changes on the consumer side. People still have cars. Theoretically, the demand for their service would still increase.
> Uber will then be rid of it's largest cost, human drivers.
Drivers also currently clean, maintain, fill up (charge up) and park the vehicles for the night, so those will be some costs to be assumed by the new car owner. Someone of that size can probably cut pretty good deals with car washes, parking garages and gas stations (electric charging facilities), but it will eat up into margins.
> Uber looks at a massive upside.
Maybe. If it's a business with superb returns, manufacturers might just look into setting up their own rental/dispatching company, the way car rental companies have an equity relationship with auto manufacturers to maintain the sales. It becomes a business with a fairly low barrier to enter.
Drivers also currently clean, maintain, fill up (charge up) and park the vehicles for the night, so those will be some costs to be assumed by the new car owner. Someone of that size can probably cut pretty good deals with car washes, parking garages and gas stations (electric charging facilities), but it will eat up into margins.
> Uber looks at a massive upside.
Maybe. If it's a business with superb returns, manufacturers might just look into setting up their own rental/dispatching company, the way car rental companies have an equity relationship with auto manufacturers to maintain the sales. It becomes a business with a fairly low barrier to enter.
>5-10 years away from being made irrelevant by autonomous technology?
I'm a skeptic on this one. I'd love to be proven wrong but getting from autonomous under limited circumstances (say designated section of limited access highways) to the more general case seems an enormous distinction that will span decades. Fifty years? Yeah, I could believe that. But not 10.
(And I'd also argue that if AI is at a level where you could have truly autonomous cars, you're also at a level of truly profound change in many, many different areas.)
I'm a skeptic on this one. I'd love to be proven wrong but getting from autonomous under limited circumstances (say designated section of limited access highways) to the more general case seems an enormous distinction that will span decades. Fifty years? Yeah, I could believe that. But not 10.
(And I'd also argue that if AI is at a level where you could have truly autonomous cars, you're also at a level of truly profound change in many, many different areas.)
The Google car's 300,000 accident-free miles demonstrates that we are technologically quite close to a level where we can have truly autonomous cars, even if the regulatory and societal frameworks need some time to catch up. And yes, we are also at a level of truly profound change in many, many different areas (such as the conversion of the middle-class salaried job into a freelance mixture of Ubering and Taskrabbiting). I think the time you're describing is already here.
How many of those accident-free miles were in uncontrolled conditions? How many of them were negotiating traffic in a rainstorm, or unplanned detours around construction, or getting boxed in by semis on the interstate, or dealing with people maybe or maybe not about to jump across from the median, or anything near the sort of calamitous and hard to manage situations typically leading to human accidents or fatality?
The Google car is brilliant but from what I understand "quite close" is stretching it.
The Google car is brilliant but from what I understand "quite close" is stretching it.
The Google car project is what, 5-10 years old? I assume that in 5-10 years it will be more capable than a human driver across the naturally encountered spectrum of driving conditions. That's "quite close" to me.
The average guy or gal on the street across much of the US has never heard of Taskrabbit and many have never heard of Uber. And, frankly, that's a pretty dystopian future you describe. Fortunately, it's not here for most people. And if I drive or walk in a large city and try to imagine an AI navigating that chaos from door to door, my mind boggles. Not to take away from the impressive work that has taken place over the last five to ten years but the "replace human 100%" use case seems really really challenging--and far out.
on the contrary uber is position to dominate the self driving car industry in terms of actual service provided to passengers
Isn't Uber/Travis always making little comments like "if we can get you a car in 5 mins, we can get you anything in 5 mins" - they are tuning an enormous logistics engine with unlimited optionality. Cars are just the start... Boober here we come (according to the ceo and pandodaily)
regarding last mile transportation, it's worth noting that Uber employees themselves not infrequently take Uber from 4th and Kings station to their office at 10th and Market, which is only a few miles away.
Uber employees also get a lot of Uber credits as part of their compensation package. I'd be curious to see how many would still use Uber if it cost money out-of-pocket.
What I meant by "last mile transportation" was the transportation of physical goods, like packages, mail, delivery food, etc. Drivers could probably fit a couple of these "errands" in at no loss, while increasing the efficiency of last mile transportation/delivery for the services seeking to deliver goods.
I'm a heavy Uber user and I even sold my car about a year ago because I no longer needed. I use it exclusively for my trips around San Francisco and the East Bay. I've noticed recently (past ~1-2 months) there is always surge pricing. I wonder if this has to do with drivers not being paid enough or if they internally redefined what surge means.
Either way I like Uber but I just don't understand how there is always surge pricing. This is still has not deterred me from using it but still I wonder...
Either way I like Uber but I just don't understand how there is always surge pricing. This is still has not deterred me from using it but still I wonder...
http://whatsthefare.com is pretty helpful. Have it bookmarked on my phone and check it before using either Uber or Lyft. They used to be able to get the surge from Uber, but it's an estimate now. Probably got blocked from Uber is my guess.
Shameless plug, but I put together http://www.Ryder.io for checking prices across Uber/Lyft/Sidecar/Summon. Ended up being very similar to whatsthefare
You don't have to be royal to Uber. Always check prices before ordering. Here you can see prices from all major Uber-like companies:
http://uphail.com/
Is it a real-time check, which would include surge pricing, or just a calculation based on carriers' published rates?
There's an app called Surge Protector: https://itunes.apple.com/us/app/id925613132
Also, http://whatsthefare.com/
Read their blog, it's pretty interesting. Fred Wilson also discusses the findings here: http://avc.com/2014/10/the-cost-of-loyalty/
Read their blog, it's pretty interesting. Fred Wilson also discusses the findings here: http://avc.com/2014/10/the-cost-of-loyalty/
Surge multiplier is currently 1.8x in midtown Manhattan. I can see cabs available with no problem (even if I just switch to uberT, it shows about 10 cabs in the area, which don't 'surge'.)
On a related note, whenever I see the surge pricing, I just see a failure of Uber to recruit enough drivers to meet demand. I don't view it as the dynamic pricing libertarian wonderland that Uber does. I also see the surge in effect almost every time I open Uber, so I pretty much never do unless I'm in a dysfunctional city (cough SF cough) and there's not another choice.
I think that in the long run, their continued insistence to not clear the market and to instead be able to show lots of empty cars driving around trolling for 3x+ fares through surge pricing is going to make public opinion quite negative among the general public.
On a related note, whenever I see the surge pricing, I just see a failure of Uber to recruit enough drivers to meet demand. I don't view it as the dynamic pricing libertarian wonderland that Uber does. I also see the surge in effect almost every time I open Uber, so I pretty much never do unless I'm in a dysfunctional city (cough SF cough) and there's not another choice.
I think that in the long run, their continued insistence to not clear the market and to instead be able to show lots of empty cars driving around trolling for 3x+ fares through surge pricing is going to make public opinion quite negative among the general public.
Sounds like summer ended and everyone returned to work increasing demand and thus surge pricing (best guess) Then you had Oracle World and Dreamforce too.
Just out of curiosity, how do people who invest at $25B valuation expect to make money? Are they okay with it going from $25B to $50B and getting 2x, or are they also looking for 10x+ return?
Investors usually get preferred stock, which sometimes comes with
* liquidation preferences
* dividends payable upon liquidity events (with their own liquidation preferences)
* board seats
* pro rata rights with future rounds
Depending on specific type of investor, some of these things turn out to be super-important compared to others.
A lot of late-stage also is facilitated by wealth management arms of large investment banks, and is a way for their clients with net worth of $1m+ to get in on the deal before the IPO, at which point even marginal returns are acceptable. A Google query with terms "Facebook IPO", "date: 2012", "private market", "regretted" sheds some light on that.
* liquidation preferences
* dividends payable upon liquidity events (with their own liquidation preferences)
* board seats
* pro rata rights with future rounds
Depending on specific type of investor, some of these things turn out to be super-important compared to others.
A lot of late-stage also is facilitated by wealth management arms of large investment banks, and is a way for their clients with net worth of $1m+ to get in on the deal before the IPO, at which point even marginal returns are acceptable. A Google query with terms "Facebook IPO", "date: 2012", "private market", "regretted" sheds some light on that.
The expected returns on late stage investments are much lower, which is proportionate with greatly reduced risk. Nobody is betting that Uber will return 100x from this point.
I've never used uber or lyft, but I used sidecar yesterday for the first time, and given this was my first experience with this kind of service I have to say this is so much better than having to hail a taxi. It sucks that you have to have a smartphone, (what do you when battery is out) but otherwise it's easy to see how transformational this kind of new service is. You can pick your driver, your driver can accept or reject based on your destination, you can see how much they will charge up front, and you can tip right from your phone making the thing entirely cashless. It's pretty amazing.
Uber sucks. Have you ever taken a cab in a city with decent cab service? You just hold up your hand and an experienced driver takes you where you're going. With Uber, you futz with the app, then the driver circles the block trying to figure out where you are, while three cabs pass by you, and if he doesn't cancel the pick up after giving up, futzes with the GPS and takes you along an inefficient route because he doesn't know better.
Man I've done a lot of both and feel that exact opposite. Cabs are the pain and all the futzing to pay and tip squirming in back seat with bags etc.
I think it depends a lot on what city you're talking about. Cabs in NYC are awesome. Cabs in SF are atrocious. There's lots of variance in between.
I've literally never had that much trouble with Uber. I also live in a city without decent cab service.
I've used Uber and Lyft but have not yet tried Sidecar. Based on your description, Sidecar sounds a lot better than hailing a taxi but a lot worse than Uber/Lyft. I would much rather give up the ability to pick my driver to have the convenience of only having to click one button to hail a car. Plus the idea that the driver can reject you and then you have to start over... what an unnecessary bit of friction.
Uber said that the median driver salary was $90,766 for UberX drivers in New York, but reporters can't find one driver who made that much (google the slate article for details). I don't think that is really crucial to the success of the company, but it is crucial to my trust of the companies estimates.
Groupon or Zynga should teach people that a business model can expand rapidly and make money for a while, or attract enough invetment to appear viable. The question is: will this still be making a lot of money in five years? When they have to expand to less attractive markets? When they have to defend against copy cats?
It's not that it isn't a good business, or a clever company. It's just that at $25 bn it has to be a really profitable, really big company for a long time. Maybe.
Groupon or Zynga should teach people that a business model can expand rapidly and make money for a while, or attract enough invetment to appear viable. The question is: will this still be making a lot of money in five years? When they have to expand to less attractive markets? When they have to defend against copy cats?
It's not that it isn't a good business, or a clever company. It's just that at $25 bn it has to be a really profitable, really big company for a long time. Maybe.
In two weeks' time:
> People Who Cut You Off in Every Bike Lane Now Worth Infinity Dollars
> People Who Cut You Off in Every Bike Lane Now Worth Infinity Dollars
They are probably raising money to buy Lyft.
So it might seem as if Uber would have to seize a large fraction of the taxi market in order to justify its valuation. Some (myself included) say this is unrealistic, because Uber is unlikely to hold on to a monopoly or majority share of the rideshare market.[2]
The important factor, however, is that Uber is rapidly expanding what previously was the conceived size of this market. People who were not taking taxis previously are now using Ubers. There was an article on here recently about parents using Uber to ferry their children around. Some folks are leaving their cars at home, and are using Uber instead, because it makes sense financially (gas+car maintenance costs, in some cases, are higher than those of taking an Uber).
Beyond this, I expect to eventually see the integration of the rideshare market (Uber, Lyft, etc.) with other services, like delivery and last-mile transportation. This is already being done by Uber Rush. I would not be surprised to see Uber and its competitors greatly expand what we previously thought of as the Taxi industry, such that even a small share of this very large industry could be well worth the $25B valuation.
[0] http://iterativepath.wordpress.com/2014/05/22/if-you-most-ag...
[1] http://fivethirtyeight.com/features/uber-isnt-worth-17-billi...
[2] http://johnloeber.com/w/uber.pdf shameless plug