Meanwhile, Uber’s “ruthless execution” and financial performance continue to astound those who are privvy to them.
As we reported last week, sources familiar with Uber’s numbers say Uber is growing revenue at 300% per year and is expected to hit an annual run-rate of $US10 billion by the end of next year.
Also, meanwhile, Uber is in the middle of another gigantic round of financing.
Here’s what we’re hearing about the latter:
- The financing could be much larger than has been reported — possibly $US2 billion or more. The original reports said $US1 billion.
- The valuation will likely be considerably higher than it was for last summer’s round, which was $US18.2 billion post-money. The valuation for this round has yet to be set and will depend on investor demand. We have heard talk of $US25-$US30 billion. One industry source has heard talk as high as $US40 billion. (The latter seems high. But investors do expect the company to go public at $US50-$US100 billion in a few years).
- In typically aggressive fashion, Uber is insisting on unusual terms and restrictions for the deal. These include the restriction that Uber investors not invest in any of the company’s competitors, like Lyft. The ride-hailing industry that Uber and others have created was originally expected to support many players in each market. Thanks to consumers’ desire for convenience, however, along with “network effects” (advantages to scale) and Uber’s hyper-aggressive competitive tactics, it is becoming a winner-take-all game. And Uber is doing everything imaginable to ensure that it is that winner.
- The potential investors for the deal include hedge funds and other “crossover” buyers — funds that buy both public and private securities. The last round included mutual-fund giant Fidelity. Mutual fund companies, hedge funds, and other public-market investors are increasingly investing in private companies, in part because companies are waiting so long to go public. These investors are missing out on the hyper-growth phases of companies’ development, and they want to start cashing in.
Inquiring minds may also wonder why Uber keeps raising so much money. After all, there are few hard costs in the business other than software and legal and lobbying fees to fend off local governments and taxi unions. (Uber doesn’t own cars).
The answer is that Uber is using cash as a competitive weapon.
When a competitor enters an Uber market, one investor in an Uber-competitor says, Uber immediately and radically cuts its prices. Uber then happily loses money on each ride, knowing that the new competitor, with inferior scale, will lose even more money on each ride. Uber bleeds the competitor until the competitor realises that Uber will do whatever it takes to crush it. The competitor then often gives up and withdraws — and Uber raises its prices again.
It takes a lot of cash to compete that way, but Uber has lots of cash. And after this round, it will have even more cash.
Anecdotally, investors are as awe-struck by Uber’s growth rate and execution as they are appalled by the company’s arrogance and scorched-earth approach to critics and competitors. Thus far, anyway, the latter has not stopped investors from clamoring to climb aboard the magic Uber money machine.