Don't be sad if you missed out on Uber

So, Uber’s quarterly call just happened. Summary financials:

  • Uber EBITDA for Q1 16 = ($520M)
  • Uber EBITDA for Q2 16 = ($750M)
  • Total EBITDA for 1H 16 = ($1.27B) but net income then post interest, taxes, depreciation and amortization will be even worse
  • 2015 EBITDA = ($2B)
  • Total losses YTD since inception = $4B
  • Cash on hand = $8B, with $1B due from Didi-UberChina deal, as well as a credit line of $2B and a loan of $1.2B
     
  •  Bookings in Q1 = $3.8B but this is GMV
  • Uber net revenue in Q1 = $960M
  • Bookings in Q2 = $5B
  • Uber net revenue = $1.1B
     
  • QoQ growth of ~15%
  • But “Uber also told investors during the call that it was changing how it calculates UberPool's contribution to revenue in the second quarter, which had the effect of artificially increasing revenue.”

Uber is sitting on a $69B valuation. This is higher than 80% of the companies in the S&P 500. Their implied multiple on revenue is 15.7x. And for context, EV/revenue for Facebook is 14.9x, Microsoft’s is 4.6x, Apple’s is 2.7x – so the order of magnitude almost feels beyond unjustifiable, especially with increasing losses. In fact, a professor at NYU Stern business school thinks Uber should be worth closer to $30B (that’s still a 6.8x rev multiple)! Uber has always focused on growth and top line numbers versus bottom line, which as a startup isn’t crazy to do but it is now time for them to ensure they are growing sustainably with proper business fundamentals (it feels their unit economics are clearly not working and they may be acquiring customers for way more than what their ultimate life time value is). Competition has increased, especially because at the end of the day, Uber’s technology is nothing that cannot be re-wired and re-used and there is literature about how their tech patent / tech defensibility score is pretty low. Their moat used to be they dominated the supply side and drivers flocked to sign up – but now the drivers have better alternatives such as tipping from Lyft rides or a lower transaction cut from Fasten. And Uber can’t lock in these drivers because they are not employees, but independent contractors, which ironically is the trend that made it successful in the first place. And from the demand side – the product and experience differentiation between a Lyft driver and Uber driver is negligible (and so price becomes the deciding factor) = introduce that pricing war. Ultimately, if Uber does not maintain their increase in marketing/growth spend, they will lose market share but what then? $8B in cash = 10 more quarters of runway, and they will raise again? At a down-round? Or cut down on spend, lose customers and still have no path way to profitability? I mean, even Prince Al Waleed might get smarter by then.

All interesting questions, and perhaps we will see Uber doing something revolutionary with Otto’s self-driving car tech but that space too is increasingly getting crowded with GM, Apple, Google all fighting to win that market before the market even exists. Of course there will be ups and downs in a company’s history and this seems like a “down” time but if anything the non-Uber investors can feel a little good about themselves right now. 


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"FOMO is so last season" - Kareen Mallet

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