all be honest with one another. No one can confidently predict how most private tech
companies will fare when they become grown-up public companies. That goes quadruple
for Uber Technologies Inc.
financial analysis, it’s perhaps the most confounding technology company of the
last decade. It may be the most genuinely novel and disruptive business in
many years. It has reshaped people’s behavior in many countries, sparked
conversations about the nature of jobs and forced governments and
transportation planners to catch up. All that can be true, and Uber still might not last. The company is almost 10 years old,
and it exists thanks only to a constant supply of fresh cash from a
handful of eager investors. This all might turn out to be a mirage.
that in mind when you read the Wall Street Journal report that investment bankers have sent proposals to
Uber valuing the company at up to $120 billion in an initial public offering,
which Uber has signaled it plans to hold next year. Yes, that is
an eye-popping figure. Only about 40 companies in the U.S. have stock
market values of $120 billion or more, Bloomberg data show.
believe I’m writing this, but $120 billion isn’t a completely nuts valuation
for Uber — at least if investors fixate only on the company’s prodigious
growth. The tricky thing is I still don’t know whether Uber is a sustainable
business given the huge losses it has piled up and the company’s
proposed strategy changes. I wonder whether investment banks or even Uber
know for sure.
let’s drill into that possible valuation. It’s worth noting that those
valuation figures tossed around by investment bankers will most likely change,
and they may be flinging out half-baked numbers to please the company and
its investors, who want big gains on what is already a firm with an
unprecedented valuation for a private company.
Uber posted nearly $10 billion in net revenue — that’s the company’s share of
fares paid by riders — in the last 12 months, according to the bare-bones
financial figures that Uber releases each quarter. At Uber’s recent growth
rate, its revenue could reach something like $16 billion at this point in
2019. That means if Uber’s IPO takes place next fall, a stock multiple of 7
to 8 times its trailing 12-month revenue gets you to a $120 billion
not a completely crazy multiple of revenue. Twitter Inc., which isn’t growing
nearly as fast as Uber at a fraction of its revenue, is trading at about 7
times its revenue for the past 12 months, according to Bloomberg data.
Facebook Inc. is around 8 times. At least until recently, IPO investors
have been so eager to own chunks of fast-growing tech companies that they have
been happy to embrace promising tech companies with quickly climbing sales but
a history of losses, half-baked business plans and other red flags.
course, it’s tough to compare Uber with what has come before because it’s
such a weird animal. The closest comparable public companies are those that
connect people who want to buy something with people who want to sell something.
That’s like eBay Inc. (valued at 3 times its revenue for the last year) or the
parent company of Priceline (6 times revenue), but of course Uber isn’t quite
like those companies either.
challenge is it’s hard to confidently say that Uber’s business works under
normal conditions — because conditions haven’t been normal for all of Uber’s
life. The company has never had to stand on its own feet financially,
thanks to a constant stream of cash in the long bounce back from the global
financial crisis. It’s not clear what Uber’s revenue or growth rate would be if
it hadn’t been able to burn cash like money is free. Actually, money has essentially been free for
it’s still not clear what Uber’s business model will be in the future. The
company’s CEO has talked about pushing more would-be riders onto for-rent
bicycles and other alternative transportation modes. The financials of that
activity will no doubt look much different from Uber’s current business of
on-demand car rides. The same goes for Uber’s investment in driverless cars.
What do Uber’s financials look like if it’s not taking a cut of rides conducted
by contracted drivers, but instead takes the full fare from cars that Uber has
to buy and maintain itself? Most companies that go public have lots of question
marks about their future. Again, that goes quadruple for Uber.
An IPO tends to be a coin-toss bet, and I suspect many investors would take
that bet on Uber under almost any circumstances and with a much crazier
valuation than $120 billion. An IPO, however, doesn’t answer the question of
whether Uber has long-term viability. The company’s IPO could go off without a
hitch and with a landmark stock market valuation. That still doesn’t mean that
Uber is a real company.
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