Uber is in talks to raise a new round of financing that could value the car service startup at more than $US10 billion, Bloomberg’s Serena Saitto reports.
To the average person, $US10 billion sounds high. To many tech investors, it sounds like a steal.
How can Uber, which is basically just a mobile app that helps you get taxis, be worth so much money? And how much more can it grow?
There’s two things that will propel Uber higher.
1. It’s just getting started with its car-calling application. Uber is only in a few markets now, and it’s already a smash hit. Imagine when it expands.
2. Uber is more than that, it’s also a next generation logistics company that could ultimately compete with established companies like FedEx or UPS.
If you’ve never used Uber, here’s how it works. Press a button on your smart phone to summon a ride. A few minutes later — during which you can chart a driver’s progress toward your location — up rolls the car. The driver doesn’t accept cash, not even for a tip. Instead the app automatically charges the passenger’s credit card once the transaction is complete. Then, both the customer and driver rate each other on Uber’s application. (Passengers who leave a driver waiting may see their ratings fall, which can result in fewer drivers agreeing to pick them up.) Uber takes 20% commission on every fare; drivers keep 80%.
We asked tech investors with no skin in the game to explain Uber’s growth potential.
“$10 billion seems low to me,” one early stage investor explained. This person said the only other startup with as much upside as Uber is Pinterest. “Global transportation is massive and bigger than $US10 billion by many multiples.” This person said Uber’s growth opportunity is “wild”.
Uber has talked about expanding beyond its car calling app to doing a logistics service. The company recently launched a package delivery program in New York City that lets users hail bike messengers. It has also experimented with on-demand helicopter rides, flowers, ice cream trucks, and more.
“What we’re doing right now is we’re in the experimentation phase where you sort of find some interesting ways to do promotions like Uber ice cream,” Uber CEO Travis Kalanick explained at a Fortune conference last year. “It’s very straightforward for us to basically give [drivers] a phone with an app on it and say, ‘Look, when the thing is blinking, hit the screen and go to where the map tells you to go.’ And you don’t have to pick them up and take them anywhere, just give them ice cream.'”
Kalanick’s close friend and Uber investor Shervin Pishevar explained Uber’s grand vision to Inc: “Uber is building a digital mesh — a grid that goes over the cities. Once you have that grid running, in everyone’s pockets, there is a lot of potential for what you can build as a platform. Uber is in the empire-building phase.”
Another investor (not invested in Uber) agrees that a $US10 billion valuation is reasonable — if not low — for Uber. That’s because the company, this person says, is “highly profitable” and its revenue projections are massive. One leaked revenue sheet showed Uber pulling in about $US20 million per week late last year, and its growth doesn’t seem to be slowing.
“This is a highly profitable company with a highly profitable and scalable marketplace business model,” this investor said. He said that he heard last year Uber’s gross revenue last year was $US750 million with $US150 million in cash flow. Projections for 2014, this person said, were $US3 billion gross revenue yielding more than $US400 million in cash.
“An 8 — 15X EBITDA multiple range is reasonable, so being worth somewhere between $US3 — 6 billion on this year’s numbers, with high growth, could easily make Uber worth $US10 billion on next year’s numbers,” says the venture capitalist. “Investors often forward pay.”
Uber is not guaranteed to win and dominate the world of logistics. There are other real-time networks, like Seamless or PostMates, that could inhibit Uber’s expansion plans. Multiple cities have given Uber legal trouble in an effort to protect cab companies. Competitors like Hailo, SideCar, and Lyft have popped up and gained traction.
Travis Kalanick, Uber’s founder, is also somewhat volatile, which could pose problems down the road.
“I would hate to go against Travis competitively. He doesn’t just want to win the space, he wants to kill Lyft,” a Silicon Valley venture capitalist says.
Another investor explains that while those — Kalanick’s personality included — are investment risks; they don’t actually detract from the lofty valuation.
“Uber is winning. The government is moving in their favour rapidly, and Travis hasn’t hurt Uber yet,” this person says. “There is no reason it won’t be a $US100 billion company in the next three to five years.”
Tech investor Semil Shah agrees. “Uber could most certainly go public yesterday — but why would they want to? No incentive. $US100B potential company,” he recently tweeted.
Uber declined to comment on the funding rumours.
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