6 ms·

Can someone explain to a layman how a company losing $600M every 3 months, with $6B remaining of $12B raised (50% loss over 8 years) is "worth" $62B?

dragonwriter 9y ago
Value is based on what investors expect the firm will be able to do in the future, which may differ from what they are doing now.
- gremlinsinc 9y ago
  I think there will be a big pivot from car ownership to rentals... maybe add up insurance, maintenance, and leasing fees to get to $600-1000 a month for unlimited car-service. Automated cars will be summoned by phone, arrive when you schedule them, and go pick up others when not needed.. Pretty sure a lot of the car companies are planning something like this, I know tesla is. Uber wants to hold out till their self-driving cars pay off, but I think it'll be a much more crowded space by then, and they might be dead in the water before hitting pay-dirt. I think uber's in a death spin, not sure it can pull out.
  - tmh79 9y ago
    > I think uber's in a death spin, not sure it can pull out. that is not evidenced at all in their financials though. Their losses are down and their revenue is up. They are doing exactly what is expected of them if they hope to be profitable in the next 18 months or so.
    - josephmerz 9y ago
      Really can't see them profitable in 18 months. At least Musk's focus is on product for all parties. Uber only cares about scaling
      - malandrew 9y ago
        And Tesla can't scale. There are just over a billion vehicles in the world today. Tesla can produce like 20k per month. Assuming 3/4s of those vehicles are consumer vehicles and we need 1/3 as many vehicles to service the transportation needs of humanity, that's 250M autonomous vehicles. It would take 1000 years for Tesla to replace the current fleet. Toyota and Volkswagen, the largest automakers can produce 10M units per year. Assuming either had a monopoly on self-driving cars, it would take either of them 25 years. Manufacturers like Volkswagen and Toyota are going to have autonomous vehicles faster than Tesla builds out the capacity to manufacture 10 million cars per year. Tesla would need to buy or partner with one of the big automakers to accelerate their growth, and even then they will be constrained by the cost of cooperation and scaling battery manufacturing. Software and hardware tech licensing is going to be the name of the game and if you have both those and represent the demand (riders), you're easily in the lead. Don't get me wrong, Tesla is going to do very well for itself. It just doesn't stand a chance competing head to head against Uber all things considered.
      - nopatternhere 9y ago
        If Yearly Revenue = Yearly Revenue X 2, and Yearly Costs = Yearly Costs X 1.5, Uber is profitable within 2 years.
  - collyw 9y ago
    Maintenance is likely to be a lot higher. You are in a car without a driver. What is to stop you spilling crap all over the seats and not cleaning up? A good deal of Taxi use comes through people drinking and not being allowed to drive.There are other benefits to having someone physically drive the car. (I think this applies even more to Amazon's automated deliveries via robot / drone - whats to stop the stuff getting stolen?)
WisNorCan 9y ago
Growth companies are valued on future expectations and not on current financials. You have to believe that the economics will improve for Uber. The $68 billion Uber valuation is also not real in the sense that investors have liquidation preferences and multiples. Employees don't and have the inverse of what is given to investors. The real value is some fraction. They have also stumbled like no other company before them. This probably has some impact.
- bousaid 9y ago
  That's my biggest wonder, how can the economics change for the better?
  - cloudwalking 9y ago
    If, for example, Uber crushes all competition, then they can raise fares and lower partner payments and make a bigger profit.
    - trevyn 9y ago
      Or if they become the self-driving service of choice, they can lower fares and capture a larger portion of the broader transportation market and make a profit.
    - debacle 9y ago
      Every time Uber scores a municipal victory, they're lowering the barrier to entry for competitors.
      - josephmerz 9y ago
        So true
      - tmh79 9y ago
        not necessarily true. Uber is developing relationships with the regulators in all of their markets, a highly local endeavor. It's possible, even likely, that they are going to use these relationships to their own advantage when launching self driving cars in different markets.
onion2k 9y ago
The long term goal for Uber is to build a global monopoly of self-driving taxis in a world where no one owns their own car. That would be worth trillions. For a long time they looked like they might manage it, but things haven't been going well lately. The latest valuation doesn't factor that in.
- josephmerz 9y ago
  Maybe if they were the only ones working on autonomous vehicles plus they may not come out well liked... it's not looking like they will in my opinion
  - ShinTakuya 9y ago
    Even if they don't get the first self driving vehicles on the market they're still in the best position to partner with whoever does and make slightly less but still a fuck tonne of money.
- malandrew 9y ago
  I find it fascinating that people talk about self-driving cars as though it were a binary thing, like either you have an entire fleet of them or you don't and that this happens in all markets all at the same time. Any proper analysis would consider the myriad ways things play out depending on how gradual and uneven self driving cars will come to market. And even if L5 were available tomorrow, it would have to be cheap enough on a unit basis manufacturable at scale to compete with driver income plus cost of a Prius over 3-4 years. In the US the unit economics might already be in favor of an L5 vehicle, but in developing markets that may not yet be the case. Furthermore, you don't just replace entire fleets to service entire economies over night. And even at that point, you need to build out all the infrastructure to support and maintain these vehicles. Gradual changes always favor the incumbents if the incumbent is aware of such changes and planning for them.
Maro 9y ago
> Uber's global ride-share business was margin positive last quarter, which is a flip from Q1. I think this means that the cost associated with an avg ride was less than Uber charged for the ride. "R&D overhead" is all the software engineers and PMs and UX people and VPs. Let's say there are 5,000 of those and each costs $300k/yr on avg, that's $1.5B/yr + offices, servers, etc. which they're losing every year. If they can further scale up the number of rides (and keep it margin positive), eventually they'll be able to finance the "R&D overhead" from the margin, and actually be overall net positive. (Or, bring down the costs by getting rid of drivers. Or, push into adjacent markets like food.) If you believe in this, then Uber is worth more than -X to you. (Lots of people actually do, so it's actually worth sth like $50B+.)
pfarnsworth 9y ago
A combination of growth rate, and positing where Uber will be once they stop spending money on things like self-driving cars, etc, which are very expensive with no revenues yet. It's similar to Amazon that for years only had minimal profits because they were spending so heavily on new products. The idea was that Amazon could generate tons of money by simply curtailing their spending, which fuels the speculation on their share price.
hkmurakami 9y ago
You can make similar statements about Tesla.
nopatternhere 9y ago
I'll have a stab. Value = what someone will pay. what someone will pay is X% less than what it will be worth in Y-Z years (where X is usually 50% and Y and Z are between 5 and 10). So, what will Uber be worth? The hyper-growth startup model is double revenue yearly, while adding 50% to costs. Lets do the maths using simplified numbers: Uber makes $7 billion per year, and loses $3B, for total costs of $10B. Year1: Revenue = $7B * 2 = $14B. Costs = $10B * 1.5 = $15B. Loss = $1B Year2: Revenue = $145B * 2 = $28B. Costs - $15B * 1.5 = $22.5B. Profit = $5.5B So, if you assume a P/E ratio of 25, Uber would be worth $137.5 in 2 years. Would I pay $62B (if I had it) for a company worth $137B in two years? Imma go ahead and say yes! Now, 100% growth on 50% cost increase may not hold, but as long as revenue growth > cost growth, Uber will inevitably be profitable. The question is by when, and profitable to what $ value, and at what multiplier? double revenue, 175% costs, and a 35 multiplier, and Uber is worth $200B in 4 years.

dragonwriter 9y ago

Value is based on what investors expect the firm will be able to do in the future, which may differ from what they are doing now.

gremlinsinc 9y ago
I think there will be a big pivot from car ownership to rentals... maybe add up insurance, maintenance, and leasing fees to get to $600-1000 a month for unlimited car-service. Automated cars will be summoned by phone, arrive when you schedule them, and go pick up others when not needed.. Pretty sure a lot of the car companies are planning something like this, I know tesla is. Uber wants to hold out till their self-driving cars pay off, but I think it'll be a much more crowded space by then, and they might be dead in the water before hitting pay-dirt. I think uber's in a death spin, not sure it can pull out.
- tmh79 9y ago
  > I think uber's in a death spin, not sure it can pull out. that is not evidenced at all in their financials though. Their losses are down and their revenue is up. They are doing exactly what is expected of them if they hope to be profitable in the next 18 months or so.
  - josephmerz 9y ago
    Really can't see them profitable in 18 months. At least Musk's focus is on product for all parties. Uber only cares about scaling
    - malandrew 9y ago
      And Tesla can't scale. There are just over a billion vehicles in the world today. Tesla can produce like 20k per month. Assuming 3/4s of those vehicles are consumer vehicles and we need 1/3 as many vehicles to service the transportation needs of humanity, that's 250M autonomous vehicles. It would take 1000 years for Tesla to replace the current fleet. Toyota and Volkswagen, the largest automakers can produce 10M units per year. Assuming either had a monopoly on self-driving cars, it would take either of them 25 years. Manufacturers like Volkswagen and Toyota are going to have autonomous vehicles faster than Tesla builds out the capacity to manufacture 10 million cars per year. Tesla would need to buy or partner with one of the big automakers to accelerate their growth, and even then they will be constrained by the cost of cooperation and scaling battery manufacturing. Software and hardware tech licensing is going to be the name of the game and if you have both those and represent the demand (riders), you're easily in the lead. Don't get me wrong, Tesla is going to do very well for itself. It just doesn't stand a chance competing head to head against Uber all things considered.
    - nopatternhere 9y ago
      If Yearly Revenue = Yearly Revenue X 2, and Yearly Costs = Yearly Costs X 1.5, Uber is profitable within 2 years.
- collyw 9y ago
  Maintenance is likely to be a lot higher. You are in a car without a driver. What is to stop you spilling crap all over the seats and not cleaning up? A good deal of Taxi use comes through people drinking and not being allowed to drive.There are other benefits to having someone physically drive the car. (I think this applies even more to Amazon's automated deliveries via robot / drone - whats to stop the stuff getting stolen?)

WisNorCan 9y ago

Growth companies are valued on future expectations and not on current financials. You have to believe that the economics will improve for Uber. The $68 billion Uber valuation is also not real in the sense that investors have liquidation preferences and multiples. Employees don't and have the inverse of what is given to investors. The real value is some fraction. They have also stumbled like no other company before them. This probably has some impact.

bousaid 9y ago
That's my biggest wonder, how can the economics change for the better?
- cloudwalking 9y ago
  If, for example, Uber crushes all competition, then they can raise fares and lower partner payments and make a bigger profit.
  - trevyn 9y ago
    Or if they become the self-driving service of choice, they can lower fares and capture a larger portion of the broader transportation market and make a profit.
  - debacle 9y ago
    Every time Uber scores a municipal victory, they're lowering the barrier to entry for competitors.
    - josephmerz 9y ago
      So true
    - tmh79 9y ago
      not necessarily true. Uber is developing relationships with the regulators in all of their markets, a highly local endeavor. It's possible, even likely, that they are going to use these relationships to their own advantage when launching self driving cars in different markets.

onion2k 9y ago

The long term goal for Uber is to build a global monopoly of self-driving taxis in a world where no one owns their own car. That would be worth trillions. For a long time they looked like they might manage it, but things haven't been going well lately. The latest valuation doesn't factor that in.

josephmerz 9y ago
Maybe if they were the only ones working on autonomous vehicles plus they may not come out well liked... it's not looking like they will in my opinion
- ShinTakuya 9y ago
  Even if they don't get the first self driving vehicles on the market they're still in the best position to partner with whoever does and make slightly less but still a fuck tonne of money.
malandrew 9y ago
I find it fascinating that people talk about self-driving cars as though it were a binary thing, like either you have an entire fleet of them or you don't and that this happens in all markets all at the same time. Any proper analysis would consider the myriad ways things play out depending on how gradual and uneven self driving cars will come to market. And even if L5 were available tomorrow, it would have to be cheap enough on a unit basis manufacturable at scale to compete with driver income plus cost of a Prius over 3-4 years. In the US the unit economics might already be in favor of an L5 vehicle, but in developing markets that may not yet be the case. Furthermore, you don't just replace entire fleets to service entire economies over night. And even at that point, you need to build out all the infrastructure to support and maintain these vehicles. Gradual changes always favor the incumbents if the incumbent is aware of such changes and planning for them.

Maro 9y ago

> Uber's global ride-share business was margin positive last quarter, which is a flip from Q1. I think this means that the cost associated with an avg ride was less than Uber charged for the ride. "R&D overhead" is all the software engineers and PMs and UX people and VPs. Let's say there are 5,000 of those and each costs $300k/yr on avg, that's $1.5B/yr + offices, servers, etc. which they're losing every year. If they can further scale up the number of rides (and keep it margin positive), eventually they'll be able to finance the "R&D overhead" from the margin, and actually be overall net positive. (Or, bring down the costs by getting rid of drivers. Or, push into adjacent markets like food.) If you believe in this, then Uber is worth more than -X to you. (Lots of people actually do, so it's actually worth sth like $50B+.)

pfarnsworth 9y ago

A combination of growth rate, and positing where Uber will be once they stop spending money on things like self-driving cars, etc, which are very expensive with no revenues yet. It's similar to Amazon that for years only had minimal profits because they were spending so heavily on new products. The idea was that Amazon could generate tons of money by simply curtailing their spending, which fuels the speculation on their share price.

hkmurakami 9y ago

You can make similar statements about Tesla.

nopatternhere 9y ago

I'll have a stab. Value = what someone will pay. what someone will pay is X% less than what it will be worth in Y-Z years (where X is usually 50% and Y and Z are between 5 and 10). So, what will Uber be worth? The hyper-growth startup model is double revenue yearly, while adding 50% to costs. Lets do the maths using simplified numbers: Uber makes $7 billion per year, and loses $3B, for total costs of $10B. Year1: Revenue = $7B * 2 = $14B. Costs = $10B * 1.5 = $15B. Loss = $1B Year2: Revenue = $145B * 2 = $28B. Costs - $15B * 1.5 = $22.5B. Profit = $5.5B So, if you assume a P/E ratio of 25, Uber would be worth $137.5 in 2 years. Would I pay $62B (if I had it) for a company worth $137B in two years? Imma go ahead and say yes! Now, 100% growth on 50% cost increase may not hold, but as long as revenue growth > cost growth, Uber will inevitably be profitable. The question is by when, and profitable to what $ value, and at what multiplier? double revenue, 175% costs, and a 35 multiplier, and Uber is worth $200B in 4 years.