tag:blogger.com,1999:blog-8152901575140311047.post6454769441958709861..comments2024-03-18T10:18:19.736-04:00Comments on Musings on Markets: On the Uber Rollercoaster: Narrative Tweaks, Twists and Turns!Aswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-8152901575140311047.post-55932877439270250462016-08-18T22:20:11.270-04:002016-08-18T22:20:11.270-04:00In response to the above comment about liquidation...In response to the above comment about liquidation preferences, the liquidation preferences of Uber stock are public. I've done the calculations with them, they aren't meaningful.<br /><br />In my opinion, Uber is easily a 100B company. Easily. You can calculate what the value of the company is based on existing revenue streams but if you had done the same thing to Google 1 year in, where would you be? Nowhere. Uber is in its infancy. It has > 16 billion in cash. It has a ton of smart people working for it. It has a business model and business that is excellent.<br /><br />It has many areas to grow. It has technology and change on its side to put winds in it sails. To bet against it is to bet against self-driving cars, automation, increased use of the internet, ordering things to be delivered wherever you are, electric cars and everything else.<br /><br />It is the leader in its space, it has excellent execution, it has a smart management team and a ton of money. Any analysis of existing business is looking at a trailing number, their business in the past. It is not looking enough at the future.<br /><br />The question is simply this. In 20 years, are you going to summon a car with your phone that will drive to you. Answer: yes. In 20 years, are trucks going to be driving on their own on the freeway? Answer: yes. In 20 years, is Uber could to be the company providing technology to car companies for basically everything? Answer: yes<br /><br />How about integration with all other transport. Airlines, trains, etc. How about shipping? You want to connect the boat and automated loading docks to the self driving trucks and make a complete delivery service. All automated.<br /><br />And there are all the other areas that we can't even imagine at this point. But give a group of technology people a core business they make money from and let them run with it and what do you get? You get a trillion dollar tech company in 2040.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-49243700443023485522015-10-26T20:17:35.827-04:002015-10-26T20:17:35.827-04:00All,
The problem with all of these DCFs and argum...All,<br /><br />The problem with all of these DCFs and arguments about valuations is that they are irrelevant (at least for the VC/Growth investors). All of these investments are some form of convertible preferred equity. Preferred Equity have several unique covenants that are unfamiliar to common stock investors: most importantly, Liquidiation Preferences and PIK accruing dividends (paid in preferred shares). these covenants allow investors to choose whether they want to convert their preferred shares into common shares OR take the payment stipulated by the LP (which typically ranges from 1-2x the invested capital) and the LP is compounded by the dilutive nature of the PIK accruing dividends. <br /><br />So long story short, as VC/Growth investor my math ISN'T what the implied "valuation" of my round is but more so: Is the worst case liquidity scenario going to cover my LP (in which case I get at least all my money back and could even generate 10%+ IRR) AND is there some chance that the best case liquidity event blows everyone out of the water and we all get filthy rich? If the answer to the worst case scenario question is a "confident yes" and the answer to the best case scenario is "there's a chance", it's probably a deal worth doing. <br /><br />The Term Sheet is 10x more important than a round's implied valuation.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-43412891618364013792015-10-18T10:44:24.232-04:002015-10-18T10:44:24.232-04:00Prof. in terms of competition I'd like to high...Prof. in terms of competition I'd like to highlight a very small first mover in a very small market like Sri Lanka. http://pickme.lk/<br />Lankan Marketshttps://www.blogger.com/profile/00458611328699964962noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-11073287851542208912015-10-18T10:43:53.362-04:002015-10-18T10:43:53.362-04:00Prof. in terms of competition I'd like to high...Prof. in terms of competition I'd like to highlight a very small first mover in a very small market like Sri Lanka. http://pickme.lk/Lankan Marketshttps://www.blogger.com/profile/00458611328699964962noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-1919316906995478842015-10-17T20:43:33.519-04:002015-10-17T20:43:33.519-04:00One risk I think missing from this analysis is the...One risk I think missing from this analysis is the sustainability of revenue (this is the same as its cost base, but from the other side of the ledger). Uber is obviously growing fast, provides a fantastically valued service, etc. But part of why it is 1) growing so fast and 2) perceived as so great is that its fares are so low. What happens if Uber has to raise fares by 50% or 100% in order to cover its costs, regardless of whether or not those costs are imposed upon it by regulators? I know that if my regular $10 rides were $15 I wouldn't ride nearly as often. It's not entirely for nothing that taxi fares are set at the levels they are.The Oriole Wayhttps://www.blogger.com/profile/16483309131692836436noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-4441647163320392812015-10-14T14:18:47.908-04:002015-10-14T14:18:47.908-04:00Yehudi,
I now get your point but that is not why I...Yehudi,<br />I now get your point but that is not why I said I was wrong. It is because my valuation of the company has changed. That may reflect the pricing by VCs, but if you look at my history in valuing young companies, I have tried (though not always succeeded) in not letting the price feedback into my value. Thus, I valued Twitter around $20 when it went public and stuck with that value as the stock premiered and went even higher. With Apple, my valuation stayed around $600, as the stock gyrated higher or lower. Thus, if I revalue Uber next year, and the cost structure remains untenable, I would hope that I will have the courage to lower my value, even if VCs are pushing the price up. That is less an issue of anchoring and more one of faith in value.<br />Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-29663358407826847302015-10-14T11:07:20.792-04:002015-10-14T11:07:20.792-04:00Thanks for your comment.
The VC's created the...Thanks for your comment.<br /><br />The VC's created the anchor by throwing some valuation number basically out of thin air. This anchor influences all future valuations, both consciously and unconsciously. It is almost impossible to ignore this anchor bias in future valuations, especially as many people attempt to "rationalize" the original valuation anchor. <br /><br />For example, you say: "I was wrong about Uber’s value in June 2014, when my estimate of $6 billion was below the $17 billion assessment by venture capitalists then." Why were you wrong then? Simply because the VC's valued it at $17 billion? And then this valuation must influence your future valuation of the company. <br /><br />The valuation methodologies used by VC's in many of these private start-ups now is very suspect. It's really just a ponzi scheme of sorts, ala Minsky. Virtually nobody analyzing these companies has audited financials. It's more of a trust me situation, with big numbers thrown out to support some fairy tale narrative.<br /><br />Personally, I use Uber all the time, and it's great, but without access to any audited financials, I don't think it's possible to value this, and my gut, considering the many flaws in the business model, just tells me that the current valuation is simply absurd, especially when compared to other stable companies that are valued at $20 billion+. Anonymoushttps://www.blogger.com/profile/10021435237247673669noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-6563719553540919292015-10-14T06:04:40.998-04:002015-10-14T06:04:40.998-04:00Hey All,
I totaly agree with Yehuda. It`s a big p...Hey All,<br /><br />I totaly agree with Yehuda. It`s a big part of the VC business to do priming. Especially, as long as Uber is a privat company and not publicly traded every statement coming from management, supervisory board, investors, consultants etc. needs to be regarded with super suspicion, because they have really strong incentives to inflate valuation. (Inflated valuations don't hurt investors as much as the original founders due to liquidation preferences) Furthermore, we all know or can imagine that Uber is a big marketing&pr juggernaut.. that means all the news about Uber has to be regarded with suspicion as well. So, even if Mr. Gurley has some good company insights, he is biased and is a successful investor maybe because he is a master of priming! Every successful VC needs to be that!<br /><br />But, I also agree with Aswath.. it's the nature of startups (young innovative companies working in absolute uncertainty) that valuations are closely tied to the narratives and vary extremely. One of many reasons for that is that terminal value can't be calculated seriously and is highly imprecise, because nobody knows what will happen in the future.. concerning Uber that means we don't know if the service will be banned in other countries as well (I come from germany where it's is banned), how long it will take that regulators react. etc... there are just to many unknown variables and variables we actually don't know that they exist or have an impact etc.<br /><br />So, in terms of Uber it's nothing more than a bet if Uber can make an impact in the industries it is aiming for. If so, than it has to be crystal clear to everybody that it won't survive if it doesn't aim for a big junk of these markets.. that means if you think Uber can make an impact than you must expect that it gets uber huge. Anonymoushttps://www.blogger.com/profile/01586163636460715986noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-6226026884077948992015-10-13T21:35:50.916-04:002015-10-13T21:35:50.916-04:00Yehuda,
Which of my anchors is causing the bias? I...Yehuda,<br />Which of my anchors is causing the bias? In fact, I am shifting all my anchors (total market, market share, profit margin). Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-42062828495345494612015-10-13T16:09:11.316-04:002015-10-13T16:09:11.316-04:00Great writing. But, this valuation post is a perfe...Great writing. But, this valuation post is a perfect example of the effects of anchoring bias. It is precisely this bias, that VC's have been able to exploit to drive the valuations of these unprofitable companies to insane levels.Anonymoushttps://www.blogger.com/profile/10021435237247673669noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-51807339788542881692015-10-13T05:28:10.036-04:002015-10-13T05:28:10.036-04:00Well the VC's valuation of $51Bn is biased, es...Well the VC's valuation of $51Bn is biased, especially if you've paid @ $17.<br /><br />The more important thing to realise here is how any "amazing" business which has a +ive economic value add (ROIC > Cost of Capital), attracts new entrants and competition. Technology is both the advantage and disadvantage and it will drive all returns across this industry to the opportunity cost of capital.<br />Whether you look at Groupon or KING entertainment, Zynga. They all followed the same path.<br />Uber will inevitably follow the Amazon style of using every $ of cash for what management think of as growth. (Future) Shareholders value will never be seen in the traditional sense. Consumers may benefit if their business model enables cost savings, but personally, I don't see this. A traditional taxi - involves a car, a drive, and the fuel, marketing costs to get customers (?). Uber has the same operational costs. Ride sharing splits the cost per customer obviously, but we are yet to see if that takes off. If it does anyway, new entrants come in, and the cycle begins again!Anonymousnoreply@blogger.com