Bill Gurley, an Uber investor and board member, is convinced that Uber’s market opportunity ranges anywhere from $US450 billion to $US1.3 trillion.
Last month, NYU finance professor Aswath Damodaran’s wrote a post saying Uber isn’t worth $US17 billion. His basic premise was that the global market for taxi and car services would have to be three times his estimate — about $US300 billion — in order to justify that valuation.
Gurley, however, says Damodaran’s analysis may be off by a factor of 25.
“In choosing to use the historical size of the taxi and limousine market, Damodaran is making an implicit assumption that the future will look quite like the past,” Gurley wrote on his blog. “In other words, the arrival of a product or service like Uber will have zero impact on the overall market size of the car-for-hire transportation market.”
Uber’s potential market is a lot different from the previous car-for-hire market. That’s because there are several things already happening to improve the traditional model that makes Uber’s potential market inherently different.
As Gurley notes, you have to take into account things like shorter pick-up times, larger coverage areas, and ease of payment. All of those factors lead to people using Uber in ways they hadn’t with taxis and black cars.
Meanwhile, Uber is also replacing or at least reducing how many cars people own. That’s the real game-changer, Gurley says.
“Damodaran likely never considered this possibility: Could Uber reach a point in terms of price and convenience that it becomes a preferable alternative to owning a car?”
All in all, Gurley estimates Uber has a market opportunity of anywhere between $US450 billion and $US1.35 trillion per year since Uber’s service “significantly expands the core market” and could be considered a “car ownership alternative.”
“It is not my aim to specifically convince anyone that Uber is worth any specific valuation,” Gurley wrote. “What Professor Damodaran thinks, or what anyone who is not a buyer or seller of stocks thinks, is fairly immaterial. I am also not out to prove him wrong. I am much more interested in the subject of critical reasoning and predictions, and how certain assumptions can lead to gravely different outcomes.”