After Lyft’s IPO on March 29, 2019, it was exclusively a thing of fourth dimension earlier Uber threw its chapeau inwards the world marketplace position ring, in addition to on Friday, Apr 12, 2019, the fellowship filed its prospectus. It is the outset fourth dimension that this company, which has been inwards the intelligence to a greater extent than oftentimes inwards the terminal few years than almost whatever publicly traded company, has opened its books for investors, journalists in addition to curiosity seekers. As someone who has valued Uber alongside the tidbits of information that have got hitherto been available well-nigh the company, to a greater extent than often than non leaked in addition to unofficial, I was interested inwards seeing how much my perspective would change, when confronted alongside a fuller accounting of its performance.
Backing up!
To larn a feel of where Uber stands now, just ahead of its IPO, I then reversing the company’s sweat to add together dorsum stock based compensation. The fellowship is clearly a coin loser, but if at that spot is anything positive that tin live extracted from this table, it is that the losses are decreasing every bit a per centum of sales, over time.
To larn a feel of where Uber stands now, just ahead of its IPO, I then reversing the company’s sweat to add together dorsum stock based compensation. The fellowship is clearly a coin loser, but if at that spot is anything positive that tin live extracted from this table, it is that the losses are decreasing every bit a per centum of sales, over time.
The Rider Numbers
One of Uber’s selling points lies inwards its non-accounting numbers, every bit the fellowship reported having 91 1 M 1000 monthly riders (defined every bit riders who used either Uber or Uber delivery at to the lowest degree 1 time inwards a month) in addition to completing 5.2 billion rides. To pause downwards those daunting numbers, I focus on the per passenger statistics to come across the engines driving Uber’s growth over time:
One of Uber’s selling points lies inwards its non-accounting numbers, every bit the fellowship reported having 91 1 M 1000 monthly riders (defined every bit riders who used either Uber or Uber delivery at to the lowest degree 1 time inwards a month) in addition to completing 5.2 billion rides. To pause downwards those daunting numbers, I focus on the per passenger statistics to come across the engines driving Uber’s growth over time:
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| Uber Prospectus: Page 21 |
There is practiced in addition to bad intelligence inwards this table. The practiced intelligence is that Uber’s annual gross billings per passenger rose almost 28% over the 3 twelvemonth period, but the sobering companion finding is that the billings/ride are decreasing. Boiled downwards to basics, it suggests that the growth inwards overall billings for the fellowship is at to the lowest degree partially driven past times existing riders using to a greater extent than of the service, albeit for shorter rides. It could also reverberate the fact the novel riders for the fellowship are coming from parts of the earth (Latin America, for instance), where rides are less expensive. Finally, I took Uber’s expense breakdown inwards their income statement, in addition to used it to extract information well-nigh what the fellowship is spending coin on, in addition to how effectively:
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| Uber Prospectus: F-4 (income tilt inwards appendix) |
I brand some assumptions hither which volition play out inwards the valuation that yous volition come across below.
- User Acquisition costs: Using the supposition that user alter over a twelvemonth tin live attributed to selling expenses during the year, I computed the user acquisition cost each twelvemonth past times dividing the selling expenses past times the number of riders added during the year.
- Operating Expenses for Existing Rides: I have got included the cost of revenues (not including depreciation) in addition to operations in addition to back upward every bit expenses associated alongside electrical flow riders.
- Corporate Expenses; These are expenses that I assume are full general expenses, non straight related to either servicing existing users or acquiring novel ones in addition to I include R&D, G&A in addition to depreciation inwards this grouping.
More than ride sharing?
Uber is a to a greater extent than complicated fellowship to value than Lyft, for ii reasons. The outset is that Uber is non a pure ride sharing company, since it derives revenues from its nutrient delivery service (Uber Eats) in addition to an assortment of other smaller bets (like Uber Freight). In the graph below, yous tin come across the development of these businesses:
Uber is a to a greater extent than complicated fellowship to value than Lyft, for ii reasons. The outset is that Uber is non a pure ride sharing company, since it derives revenues from its nutrient delivery service (Uber Eats) in addition to an assortment of other smaller bets (like Uber Freight). In the graph below, yous tin come across the development of these businesses:
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| Uber Prospectus: Page 114 |
It is worth noting this tabular array patch suggests that patch some of Uber’s to a greater extent than ambitious reaches into logistics have got non borne fruit, its foray into nutrient delivery seems to live picking upward steam. Uber Eats has expanded from 2.68% of Uber’s cyberspace revenues to 13.12%. There is some additional information inwards some other portion of the prospectus, where Uber reports its "adjusted" cyberspace revenue in addition to gross Billings past times business, and it does facial expression similar Uber's cyberspace have got from Uber Eats is lower than its have got from ride sharing:
While it is clear that Uber's ride sharing customers have got been quick to adopt Uber Eats, at that spot are subtle differences inwards the economic science of the ii businesses that volition play out inwards time to come profitability, particularly if Uber Eats continues to grow at a disproportionate rate.
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| Uber Prospectus: Pages 102 & 103 |
Unlike Lyft, which has kept its focus on the States of America in addition to Canadian markets, Uber's ambitions have got been to a greater extent than global, though reality has set a crimp on some of its expansion plans. While Uber's initial plans were to live everywhere inwards the world, large losses have got led Uber to abandon much of Asia, leaving mainland People's Republic of China to Didi in addition to South Eastern Asia to Grab, alongside Republic of Republic of India existence the 1 large marketplace position where Uber has stayed, fighting Ola for marketplace position part in addition to who tin lose to a greater extent than money. The fastest growing overseas marketplace position for Uber has been Latin America, every bit yous tin come across inwards the graph below:
Uber does non render a breakdown of profitability past times geographical region, but the magnitude of the losses that they wrote off when they unopen their Chinese in addition to South East Asian operations suggests that the States of America remains their most lucrative ride sharing market, inwards terms of profitability.
The Road Ahead : Crafting a even out and value for Uber
1. H5N1 Top Down Valuation
In valuing Lyft, I used a top-down approach, starting alongside States of America shipping services every bit my total accessible marketplace position in addition to working downwards through marketplace position share, margins in addition to reinvestment to derive a value of $13.9 billion for its operating assets in addition to $16.4 billion alongside the IPO proceeds counted in. Using a similar approach is trickier for Uber, since its determination to live inwards multiple parts of the logistics describe organisation in addition to its global ambitions take away assessment of a global logistics market, a challenge. I did an initial assessment of Uber, using a much larger total marketplace position in addition to arrived at a value of $44.4 billion for its operating assets, but adding the portions of Didi, Grab in addition to Yandex Taxi pushed this number upward to $55.3 billion. Adding the cash repose on mitt every bit good every bit the IPO proceeds that volition remain inwards the theatre (rumored to live $9 billion), earlier subtracting out debt yields a value for equity of well-nigh $61.7 billion.
In valuing Lyft, I used a top-down approach, starting alongside States of America shipping services every bit my total accessible marketplace position in addition to working downwards through marketplace position share, margins in addition to reinvestment to derive a value of $13.9 billion for its operating assets in addition to $16.4 billion alongside the IPO proceeds counted in. Using a similar approach is trickier for Uber, since its determination to live inwards multiple parts of the logistics describe organisation in addition to its global ambitions take away assessment of a global logistics market, a challenge. I did an initial assessment of Uber, using a much larger total marketplace position in addition to arrived at a value of $44.4 billion for its operating assets, but adding the portions of Didi, Grab in addition to Yandex Taxi pushed this number upward to $55.3 billion. Adding the cash repose on mitt every bit good every bit the IPO proceeds that volition remain inwards the theatre (rumored to live $9 billion), earlier subtracting out debt yields a value for equity of well-nigh $61.7 billion.
2. H5N1 Rider-based Valuation
The incertitude well-nigh the total accessible market, though, makes me uneasy alongside my top downwards valuation. So, I decided to attempt some other route. In June 2017, I presented a unlike approach to valuing companies similar Uber, that derive their value from users, subcribers or members. In that approach, I began past times valuing an existing user (rider), past times looking at the revenues in addition to cash flows that Uber would generate over the user’s lifetime in addition to thence extended the approach to valuing a novel user, where the cost of user acquisition has to live netted out against the user value. I completed the assessment past times computing the value drag created past times non-rider related costs (like G&A in addition to R&D). In the June 2017 valuation, I had to brand do alongside minimalist item on expenses but the prospectus provides a much richer pause down, allowing me to update my user-based valuation of Uber. The valuation pic is below:
The incertitude well-nigh the total accessible market, though, makes me uneasy alongside my top downwards valuation. So, I decided to attempt some other route. In June 2017, I presented a unlike approach to valuing companies similar Uber, that derive their value from users, subcribers or members. In that approach, I began past times valuing an existing user (rider), past times looking at the revenues in addition to cash flows that Uber would generate over the user’s lifetime in addition to thence extended the approach to valuing a novel user, where the cost of user acquisition has to live netted out against the user value. I completed the assessment past times computing the value drag created past times non-rider related costs (like G&A in addition to R&D). In the June 2017 valuation, I had to brand do alongside minimalist item on expenses but the prospectus provides a much richer pause down, allowing me to update my user-based valuation of Uber. The valuation pic is below:
This approach yields a value for the equity of well-nigh $58.6 billion for Uber’s equity, which 1 time to a greater extent than depending on the part count would interpret into a part cost of $51/share. (Update: Based upon intelligence stories today (4/26/19), it looks similar the part count volition live closer to 1.8 billion to 2 billion shares, which volition termination inwards a value per part closer to $30/share).
Value Dynamics
The benefits of the rider-based valuation is that it allows us to isolate the variables that volition determine whether Uber turns the corner chop-chop in addition to tin brand plenty coin to justify the rumored $100 billion value. The value of existing riders is determined past times the growth charge per unit of measurement inwards per-user revenues in addition to the cost of servicing a user, alongside increases inwards the quondam in addition to decreases inwards the latter driving upward user value. The value of novel riders, inwards the aggregate, is determined past times the increment inwards passenger count in addition to the cost of acquiring a novel rider. One troubling aspect of the growth inwards users over the terminal 3 years has been the increment inwards user acquisition costs, possibly reflecting a to a greater extent than saturated market. In the tabular array below, I guess the value of Uber's equity, using a arrive at of assumptions for the growth charge per unit of measurement inwards per user revenues in addition to the cost of acquiring a novel user:
The benefits of the rider-based valuation is that it allows us to isolate the variables that volition determine whether Uber turns the corner chop-chop in addition to tin brand plenty coin to justify the rumored $100 billion value. The value of existing riders is determined past times the growth charge per unit of measurement inwards per-user revenues in addition to the cost of servicing a user, alongside increases inwards the quondam in addition to decreases inwards the latter driving upward user value. The value of novel riders, inwards the aggregate, is determined past times the increment inwards passenger count in addition to the cost of acquiring a novel rider. One troubling aspect of the growth inwards users over the terminal 3 years has been the increment inwards user acquisition costs, possibly reflecting a to a greater extent than saturated market. In the tabular array below, I guess the value of Uber's equity, using a arrive at of assumptions for the growth charge per unit of measurement inwards per user revenues in addition to the cost of acquiring a novel user:
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| Download spreadsheet |
There are ii ways that yous tin read this table. If yous are a trader, deeply suspicious of intrinsic value, yous may facial expression at this tabular array every bit confirmation that intrinsic value models tin live used to deliver whatever value yous desire them to, in addition to your suspicions would live good founded. I am a believer inwards value in addition to I come across this tabular array inwards a unlike light.
- First, I stance it every bit a reminder that my guess of value is just mine, based on my even out in addition to inputs, in addition to that at that spot are others alongside unlike stories for the fellowship that may explicate why they would pay much to a greater extent than or much less than I would for the company.
- Second, this tabular array suggests to me that Uber is a fellowship that is poised on a knife's edge. If it just continues to just add together to its passenger count, but pushes upward its cost of acquiring riders every bit it goes along, in addition to existing riders do non increment the usage of the service, its value implodes. If it tin larn riders to significantly increment usage (either inwards the shape of to a greater extent than rides or other add together on services), it tin uncovering a way to justify a value that exceeds $100 billion.
- Third, the tabular array also indicates that if Uber has to pick betwixt spending coin on acquiring to a greater extent than riders or getting existing riders to purchase to a greater extent than of its services, the latter provides a much bigger bang for the buck than the former.
Having spent all of this fourth dimension on Uber's valuation, permit me concede to the reality that Uber volition live priced past times the market, in addition to it volition live priced relative to Lyft. That is why Uber has in all probability been pulling harder than almost whatever 1 else inwards the marketplace position for the Lyft IPO to live good received in addition to for its stock to hand on to do good inwards the aftermarket. In the tabular array below, I compare fundamental operating numbers for Uber in addition to Lyft, alongside Lyft's pricing inwards the marketplace position inwards place:
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| Download pricing spreadsheet |
Conclusion
I am sure as shooting that at that spot are many who empathise the ride sharing describe organisation much ameliorate than I do, in addition to come across obvious limitations in addition to pitfalls inwards my valuations of both Uber in addition to Lyft. In fact, I have got been incorrect before on Uber, every bit Bill Gurley (who knows to a greater extent than well-nigh Uber than I always will) My outset in addition to fatally flawed valuation of Uber (June 2014)
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