Stream On: An IPO Valuation of Spotify!

In the last few weeks, we have seen two high profile unicorns file for initial public offerings. The first out of the gate was Dropbox, a storage solution for a world where gigabyte files are the rule rather than the exception, with a filing on February 23. Following close after, on February 28, Spotify, positioning itself as the music streaming analog to Netflix, filed its prospectus. With it's larger potential market capitalization and unusual IPO structure, Spotify has attracted more attention than Dropbox, and I would like to focus this post on it.

Spotify: The Back Story

Spotify was founded in 2008 in Sweden, by Daniel Ek and Martin Lorentzon, as a music streaming service. The timing was opportune, since the company caught and contributed to a shift in the music business, as users have moved away from paying for physical (records, CDs) to digital, as evidenced in the graph below:

Source: IFPI

Note that not only has the move towards streaming, in proportional terms, been dramatic, but disruption has come with pain for the music business, with a drop in aggregate revenues from $24 billion in 1999 to about $16 billion in 2016.  In a bright spot, revenues have started rising again in 2016 and 2017, and it is possible that the business will rediscover itself, with a new digital model. Spotify was not the first one in the business, being preceded by both Pandora and Soundcloud, but its success is testimonial to the proposition that the spoils seldom go to the first movers in any business disruption.

The Spotify business model is a simple one. Listeners can subscribe to a free version, with limited customization features (playlists, stations etc.) and online ads. Alternatively, they can subscribe to a premium version of the service, paying a monthly fee, in return for a plethora of customization options, and no ads. The company's standard service cost $9.99/month in the United States in 2018, with a family membership, where up to six family members living at the same address, can share a family service for $14.99/month, while preserving individualized playlists and stations. Prices vary globally, ranging from a high of $16.94 in the UK (for standard service) to much lower prices in Eastern Europe and Latin America. (You can check out the variations in this fascinating link that reports the prices across the world for Spotify, in dollar terms.) Spotify pays for its music content, based upon how often a song is streamed, but the rates vary depending on whether it is on the free or premium service and where in the world, creating some complexity in how it is computed.  To get a sense of where Spotify stands right now and how it got there, I looked the prospectus, with the intent of catching broad trend lines. I came up with the following:

1. Explosive Growth: Spotify is coming off a growth burst, especially since 2015, in both number of users and revenues, as can be seen in the graph below. Revenues have increased from 1.94 billion Euros to 4.09 billion Euros, reflecting both a growth in subscribers from 91 million to 159 million, and a change in the composition, with premium members climbing from about 31% of total subscribers in 2015 to 45% of subscribers in 2017.

   

   Source: Spotify Prospectus
2. Subscription Revenue dominates Ad Revenue: Spotify's focus on improving its premium subscriptions is explained easiest by looking at the breakdown of revenues each year, where subscription revenues have accounted for 90% of revenues each year from 2015 to 2017. The one discordant note is that average revenue per premium subscriber has dropped over the same period 7.06 Euros/month to 5.24 Euros/month, a change that the company ascribes to family memberships, but a problematic trend nevertheless:

   

   Source: Spotify Prospectus

3. Content Costs are coming down: While Spotify insists that it is not scaling back payouts to music labels and artists, the company has been able to lower its content costs as a percent of revenues each year from 88.7% of revenues in 2015 to 79.2% of revenues in 2017. In fact, Spotify has conveyed to investors that its intent is to earn gross margins of 30%-35%, implying that it sees content costs dropping to 65%-70% of revenues. There is an inherent tension here between what Spotify has to convince its investors it can do and what it tells the music industry  it is doing and the tension will only intensify, after the company goes public.

   

   Source: Spotify Prospectus

4. Other costs are trending up: There are three other buckets of cost at Spotify -R&D, Selling & Marketing and G&A- and these costs are not only growing but eating up larger proportion of revenues. If there are economies of scale, as you would expect in most businesses,  they are not manifesting themselves in the numbers yet. The collective load of these expenses are creating operating losses, and while margins have become less negative, it is primarily through the content cost controls.
   
   

   

   Source: Spotify Prospectus

At this stage of its story, Spotify is a growth company with lots of potential (no irony intended) but lots of rough spots to work out.

The Spotify IPO

I have posted ahead of IPOs for many companies in the last decade, ranging from Facebook to Twitter to Alibaba to Snap, but Spotify's IPO is different for two reasons:

1. No Banks: In a typical IPO, the issuing company seeks out an investment bank, which not only sets an offering price (backed up by a guarantee) but also creates a syndicate with other banks  to market the IPO, in roadshows and private client pitches. The Spotify IPO will dispense with the bankers and go directly to the market, letting demand and supply set the price on the opening day.
2. Cashing Out: In most IPOs, the cash that comes in on the offering, from the shares that are bought by the public, is kept in the company, either to retire existing financing that is not advantageous to the firm, or to cover future investment needs. Spotify is aiming to raise about $1 billion from its offering, but none of it will go to company. Instead, existing equity investors in the company will be receiving the cash in return for their holdings.

As a potential investor, I am less concerned about the "no banker" part of the IPO than I am by the "cash out:" part of the transaction: 

• No bankers, no problem: I think that the banking role in IPOs is overstated, especially for a company as high profile as Spotify. Bankers don't value IPOs; they price them, usually with fairly crude pricing metrics, though they often reverse engineer DCFs to back up their pricing. Their guarantee on the offering price is significantly diluted in value by the fact that they set offering prices 10% to 15% below what they think the market will bear, and their marketing efforts are more useful in gauging demand than in selling the securities. From an investor perspective, there is little that I learn from road shows that I could not have learned from reading the prospectus, and there is almost as much disinformation as information meted out as part of the marketing.
• Control or Growth: I find it odd that a company like Spotify, growing at high rates and losing money while doing so, would turn away a billion in cash that could be used to cover its growth needs for the near future. The cashing out of existing owners sends two negative signals.  The first is that they (equity investors who cash out) do not feel that staying on as investors in the company, as a publicly traded entity, is worth it. Since they have access to data that I don't, I would like to know what they see in the company's future. The second is that the structure of the share offering, with voting and non-voting shares, indicates a consolidation of control with the founders, and the offering may provide an opportunity to get rid of dissenting voices.

My Spotify Valuation

In keeping with my view that you need a story to provide a framework for you valuation inputs, and especially so for young companies, I constructed a story for Spotify with the following elements:

1. Continued (but Slower) Revenue Growth: Spotify's success in scaling up over the last three years also sets the stage for a slowing down of growth in the future, with competition for Apple Music (backed by Apple's deep pockets) contributing to the trend. A combination of increases in subscriber numbers and a leveling off and even a mild increase in subscription per member will translate into a revenue growth of 25% a year for the next five years, scaling down to much lower growth in the years after. Since I am projecting revenues for Spotify in 10 years that are larger than the reported global music business revenues today, implicit in this story is the assumption that the music business overall has turned the corner and that aggregate revenues will not only continue to post increases like they did in 2016 and 2017, but that streaming will be the savior of the music business, allowing it expand its reach into emerging markets and pick up more paying customers. 
2. With Reduced Content Costs: Spotify's entire value proposition rests on improved operating margins and a large portion of the improvement has to come from continuing to reduce content costs as a percent of revenues. Since Spotify pays for its content based upon song streams, those savings have to come from either paying less per stream (which is going to and should create push back from labels and artists) or finding ways to create economies of scale on this cost component. In it's defense, Spotify can point to its track record from 2015 to 2017 in reducing content costs. I assume that they can reduce content costs to 70% of revenues, while finding a way to keep artists and labels happy. That is not going to be an easy balance to maintain, especially with the top artists, as evidenced by Taylor Swift's and Jay-Z's decisions to pull their music from Spotify. (I have been told that they have reversed their decisions, but this fight is ongoing.)
3. And Economies of Scale on Other Costs: Of the three other costs, the marketing expenses are the ones most likely to scale down as growth declines, but for Spotify to deliver solid operating margins, it also has to bring R&D costs and G&A costs under control. I may be over optimistic on this front, but here is what my projected values yield for my target operating margin (ten years from now):
   
4. With Limited Capital Investments: Spotify's business model is built for scaling, with little need for capital reinvestment, except for R&D. Consequently, I assume that small capital investments can generate large revenues, using a sales to capital ratio of 4.00 (putting it at the 90th percentile of global companies) to estimate reinvestment.
5. Manageable Operating Risk but Significant Failure Risk: Spotify's subscription based model and low turnover rate among subscribers does lend some stability to revenues, though adding more subscribers and going for growth is a riskier proposition. Overall, allowing for their business mix (90% entertainment, 10% advertising) and their global mix of revenues yields a  cost of capital of 9.24%, at the 80th percentile of global companies; the firm is planning to convert much of its debt into equity at the time of the IPO, giving it a equity dominated capital structure. However, the company is still young, losing money and faces deep pocketed competition, suggesting that failure is a very real possibility. I assume a 20% chance of failure, with failure translating into selling the company to the highest bidder at half of its going concern value.
6. Loose Ends: To estimate equity value in common shares, I add the cash balance of the company of 1.5 billion Euros and a cross holding in Tencent Music (valued at 910 million Euros), ignore the proceeds from the IPO because of the cash-out structure and net out the value of 20.82 million options/warrants outstanding, with an average strike price of 42.56 Euros per share. Dividing the equity value of 16.5 billion Euros by 177.17 million shares (including restricted shares) yields a value per share of 93.40 Euros per share or $115.31. The shares that you will be buying will be non-voting, implying a discount on this number, though how much you discount it will depend on how much you like and trust the company's founders.

The entire picture, with the story embedded in it, is shown below. You can also download the spreadsheet here. (The base year numbers in the prospectus were all in Euros, but all of the valuation inputs (growth, cost of capital) are in US dollars, making it a US dollar valuation. In hindsight, I should have restated the base year numbers in US dollars. While it would not have changed the valuation, it would have reduced currency confusion. Alternatively, I could have valued the company entirely in Euros, with lower growth rates and costs of capital, and arrived at Euro valuation that yield roughly similar results):

Download spreadsheet

It goes without saying, but I will say it anyway, that I made lots of assumptions to get to my value and that you may (and should) disagree with me or some or even all of these assumptions. You are welcome to download the spreadsheet that contains my valuation of Spotify and make it your own.

Bottom Line

There are three elements missing in this post. First, I have argued in my prior IPO posts that what happens after initial public offerings is more of a pricing game than a value game. To those of you who want to play that game, I don't think that this post is going to be very helpful. In my next post, I will look at how best to price Spotify, why you will hear pessimists about the company talk a lot about Pandora and optimists about Netflix. Second, there is the argument that top down valuations, like the one in this post, are ill equipped to value user or subscriber based companies. I will also use the user-based model that I introduced last year to value an Uber rider and an Amazon Prime member to value a Spotify subscriber. Finally, there is the lurking question of what Spotify is learning about its subscriber music tastes and how that data can be used to not only modify its offerings but perhaps create content that is more closely tailored to these tastes. That too has to wait for the next post.

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Data Links

1. Spotify Prospectus
2. Spotify DCF Valuation

Uber's bad week: Doomsday Scenario or Business Reset?

Uber just cannot seem to help itself, finding a way to get in the news, and often in ways that leave its image in tatters. You could see this pattern in full display last week, where Travis Kalanick, its founder and CEO took a leave of absence to reinvent himself as Travis 2.0, and David Bonderman, founding partner at TPG and Uber director, had to step down after making a sexist remark at a meeting with Uber employees about countering sexism. Today, Travis made his departure permanent, throwing the company into chaos as the board searches for a replacement. As someone who has been collecting stories almost obsessively about the company since June 2014, this is just the latest in a long string of news events, where Uber has been portrayed as a bad corporate citizen. As with prior episodes, there are many who are writing the company’s epitaph but I would not be in too much of a hurry. This is a company that built itself by breaking rules, and while I believe that the latest controversies will damage Uber, they will not disable it.

Uber: Retracing history

If you are just starting to pay attention to Uber, after the last week, let me start by bringing you up to date with the company. Founded in 2009, by Travis Kalanick and Garrett Camp, in San Francisco as UberCab, and going into operation in 2010, the company has redefined the car service business, making the taxi cab a relic, at least for some segments of the population. Uber’s initial business model, which became the template for the ride sharing business, was a simple one. The company entered the car service business, and did so without buying any cars or hiring any drivers, essentially letting independent contractors use their own cars and operating as match-maker (with customers). That low capital intensity model has allowed the company to grow at an astronomical rate, with almost no large infrastructure or capital investments through much of its life.

My first brush with Uber was in June 2014, when I tried to value the company. While many have since reminded me how wrong I was in my judgment, I have no qualms about repeating the story that I said about Uber at the time and the resulting valuation. Framing Uber as an urban, car-service company with local networking benefits and a low capital intensity model, I valued the company at about $6 billion. In fact, Bill Gurley, a partner at Benchmark Capital and an early investor in Uber, took me to task for the narrowness of my story, arguing that I was missing how much Uber would change the logistics market with his offerings.

Bill was right, I was wrong, and I did underestimate Uber’s growth potential, both in terms of geography and in attracting new users into the car service business. In October 2015, I revisited my Uber valuation and told a more expansive story of the company, incorporating its global reach and the influx of new users, while also noting that the pathway to profitability now faced far more roadblocks (as Didi Chuxing, Ola and GrabTaxi all found investors with open pockets and ramped up the competition). That resulted in a much higher revenue forecast, combined with more subdued operating margins, to yield a value of about $23 billion for the company.

In August 2016, I took another look at Uber, after it exited the Chinese market (the largest potential ridesharing market in the world) ceding the market to Didi Chuxing in return for Uber getting a 20% stake in Didi. I argued that this was a good development, since China had become a money pit for the company, sucking up more than a billion dollars in cash in the prior year. While there was some positive movement on some of my assumptions (slightly smaller losses and continued revenue growth), they were offset by some negative movement in other assumptions, leaving my value at about $28 billion, with almost all of the change in value from the prior year coming from the Didi stake that Uber got in exchange for leaving the China market. These are, of course, my stories about Uber and valuations and they matter little in how Uber is perceived by the market. In fact, there is clear evidence that notwithstanding all of the negativity around the company, investors have consistently pushed up its pricing from $ 60 million in 2011 to $3.5 billion in 2013 to $17 billion in June 2014 to almost $70 billion in the most recent capital round.

Uber: An Operations Update

The problem with Uber is that as a private business, albeit one with a high profile, its financial statements are not public. For much of its life, the only numbers that have been made public about the company have been leaked and my valuations have been based on this leaked information. Early this year, Uber finally departed from the script, partly with the intent of drawing attention away from negative stories about the company, and revealed selected financials for 2016. In particular, it reported that it generated more than $20 billion in gross billings in 2016, doubling its 2015 numbers, and that its share of these billings was $6.5 billion (which represents its net revenues). The latter number is puzzling since the company's stated share of the billings is only 20% (which would have meant only $4 billion in revenues) but part of the difference can be explained by the fact that Uber reported its gross billings from UberPool, its car pooling service, as revenues. The revenue growth has been dazzling but the losses continued to mount as well. Uber reported a loss of $2.8 billion for 2016, but that number would have been worse (closer to $3.8 billion) if losses in its defunct China operations had been counted. Overall, though, like all of its financial disclosures, leaked or otherwise, the number paint a mixed picture of Uber. On the plus side, they show a company growing explosively, adding cities, drivers and gross billings as it goes along. On the minus side, you are not seeing the rapid improvements in margins that you would expect to see as a company scales up, if it has economies of scale. 

One reason why losses at Uber have continued to mount, even as revenues rise, is that the competition has not cooperated in Uber's quest for world domination. Rather than be intimidated by the Uber presence and capital advantage, some competitors (like Lyft) have adapted and narrowed their focus to markets, where they can compete. In fact, it is ironic that Lyft, which has long been viewed as the weaker competitor, reported an increase in market share in the US ride sharing market in 2016 and may be first to turn a profit in this business. Others, like Didi Chuxing, have attacked Uber's strength with strength, showing the capacity to raise capital and burn through it just as fast and recklessly as Uber has. Still others, like Ola, have played to local advantages to establish a beachhead against Uber. If Uber's original intent was to use shock and awe to wipe out its competition and emerge as the only player standing, it will have to rethink its plans.

The final leaked reports from the first quarter of 2017 seem to offer some glimmers of hope for Uber, as net revenues continued to increase (rising 18% from the prior quarter's numbers to 3.4 billion) and losses shrunk to $708 million from the $991 million in the prior quarter. Uber optimists found reasons to celebrate in these numbers, arguing that the much awaited margin improvement is now observable, but I would hold off until we not only get fuller financials but also are able to see how much the company paid out in stock based compensation. Using the same indefensible practice that other technology companies have adopted, Uber reports its profits (or in its case, its losses) before stock based compensation.

Uber: The Extracurricular Activity

With Uber, it has never just been about the numbers, because the company finds a myriad of ways to get in the news. Early on its life, some of this was by design, especially when the news stories were about the company evading rules and regulations to offer service in a city, since it burnished the company's reputation for getting things done first and worrying about the rules afterwards. In the last few months, it looks like the news cycle has spun out of Uber's control and that the stories have the potential, at least, to do real damage.

1. The Google/Waymo Legal Tangle: Uber has not been shy about its desires to one day have self driving cars be its vehicles of choice, increasing investment needs in the business and potentially profit margins. The problem with this strategy it that it has brought Uber head to head against Google, a player with not only a head start in this business but also pockets so deep that it make's Uber's access to capital look paltry. That is perhaps why Uber announced with fanfare that it had hired Anthony Levandowski, a key player on the Google Waymo team, to lead its self driving car project. Any positive payoff from this announcement has been more than erased by subsequent developments, starting with Google accusing Mr. Levandowski of stealing proprietary information and suing Uber for being complicit in the deception,  and with Uber folding, by firing Mr. Levandowski. I am not sure how far this has set Uber back in the driverless car business, but it certainly could not have helped.
2. Travis YouTube Meltdown: You would think that someone with Travis Kalanick's tech savvy would know better, but his public confrontation with an Uber driver about whether Uber was squeezing drivers was recorded and went public. While this was a small misstep, relative to Uber's much bigger public relations fiascos, the incident reinforced the view among some that Kalanick was too impetuous and immature to be the CEO of a high profile company.
3. Sexism and Boorishness: The stories about boorish behavior at Uber have been around a long time, and for a while, the company seemed to not just ignore these stories but feed off them. In the last few months, the stories acquired a darker edge with Susan Fowler, an ex-Uber engineer, writing about sexual harassment during her tenure at the company and the unwillingness of the company to do anything about it.  Susan Fowler's chronicling of sexism at Uber had consequences, since the company hired Eric Holder and Tammy Albaran  to look at corporate behavior and culture. Their report not only contained a listing of Uber's cultural problems but also included forty seven recommendations on how Uber could create an inclusive workplace, leading off with the one that Uber's board of directors "should evaluate the extent to which some of the responsibilities that Mr.Kalanick has historically possessed should be shared or given outright to other members of senior management".

The Covington report could not be ignored and the last week was consequential. Travis Kalanick announced that he was taking a break from his role as CEO "to work on Travis 2.0 to become the leader that this company needs and that you deserve". It was in a follow-up meeting with Uber employees that Arianna Huffington chaired, with the intent of making Uber a more welcoming environment for women, that David Bonderman quipped about how having more women as directors would make it "much more likely there’ll be more talking" at meetings. Talk about being stone deaf!

What now?
In a post from long ago, I talked about how news events can alter valuations by affecting the stories that you tell about companies and classified these story alterations into three groups:

• In a story break, you learn something about a company that renders your story moot and makes your valuation irrelevant (perhaps making it zero). This is the take that some have taken with Uber, when they have argued that the most recent news stories have doomed the company by breaking its story.
• In a story change, the news that you acquire can lead to you significantly expanding or contracting the story that you were telling about the company, with the former increasing value and the latter reducing it. My story for Uber dramatically expanded from the urban, car service company, with a value of $6 billion in June 2014, to a global logistics company facing challenges in turning revenues to profits, with a value of $23 billion, in September 2015.
• In a story shift, your basic story stays unchanged but with shifted contours. With Uber, that is what transpired, at least for me, between September 2015 and September 2016, where notwithstanding all of the news about the company, the story remained mostly unchanged, with perhaps higher revenue growth and lower profitability offsetting each other to leave value unchanged at about $25 billion.

So, are the events of the last few months at Uber a story break (which would be catastrophic for its business and value), a story change (where Uber will continue to operate but with much more restraint in going for growth) or just a story shift (where after a few bumps and bruises, the company will continue on its current path)? To answer this question, you have to look how the different constituent groups, that are key to the company's pathway to profits, will react to these latest news stories. On the operations side, there are the regulators, who set the entry and operating rules in the cities that Uber operates in, the drivers who provide the life blood for the ride sharing operations and the customers, who choose to uber rather than use their own cars, mass transit or cabs. On the business side, there are the managers, from the top levels down to middle management, who will chart the future growth map for the company, and the engineers and technical staff, who make it a functional company. On the financing side, there are the venture capitalists who provided the initial capital for the company to go from start up to operations and the public equity investors (mutual funds and sovereign funds). Each of these groups has the potential to alter the Uber story and thus its value:

The doomsday scenario is embedded in this picture. For this crisis to take Uber down, millions of Uber customers will have to delete their apps, droves of Uber drivers will quit, regulators will rescind permissions already granted to operate in cities, Uber managers will be paralyzed, engineers will refuse to work for the company and investors (both venture capital and public equity) will not only cut off access to fresh capital and mark down their existing investments. Could these events unfold? It is possible, but unlikely, because each of these groups, I think, has too much to lose, if Uber implodes:

• Customers use Uber because it is cheap, convenient and quick and I seriously doubt that the corporate culture makes it even to the top ten list of considerations for most customers. Remember that the much publicized #DeleteUber movement a few months ago resulted in about 200,000 people deleting the app, about 0.5% of Uber's 40 million users. When moral arguments conflict with basic economics, economics almost always wins, and I seriously doubt that Uber will face much of a customer backlash.
• Without its drivers, there would be no Uber but of all of the constituent groups, drivers are likely to have the fewest delusions about the company, since they have been at the receiving end of its ruthless competitiveness. Given their need to make an income, it is both unfair and unrealistic to expect a significant number of drivers to stop driving for Uber just because of recent news stories, especially since most of these stories reaffirm what the drivers have always believed about the company.
• It is true that Uber has handed regulators another cudgel to beat them with and perhaps use as an excuse for crimping their operations, but given how ineffective regulators have been in slowing the company down, especially in the fact of backlash from Uber customers, I don't see the recent news changing the dynamics by enough to make a difference.
• On the managerial front, several news stories over the last week suggest that while Travis Kalanick was away on his reinvention mission, the company would be run by a committee of thirteen lieutenants (the people reporting to Kalanick), not a good development, especially when you have to make decisions quickly, but since these are people who were all hand picked by Kalanick, and are therefore more likely to think alike than disagree, it may work. This morning's news story that Kalanick had quit as CEO does create some uncertainty about future direction, which will not be resolved until a new CEO is hired.
• Susan Fowler, the author of the blog post that led Uber to their current woes, was an engineer at Uber and she indicates that Uber's actions resulted in female engineers fleeing the company, dropping from 25% to less than 3% of the engineering workforce.  There is the danger that Uber's environment is viewed as so toxic that engineers will refuse to work for the company and that could be devastating for the company. While I think that this will weigh, at least in the near term, on Uber's capacity to attract investors, there will be enough engineers who will still be swayed by the company's resources and the excitement of working on the next big thing in sharing economy.
• The investors (venture capitalists and public investors) who seeded this company clearly have the most to lose (in potential profits) from the company imploding and the desire to preserve capital will lead them to do whatever needs to be done to save the company. Consequently, it is extremely unlikely that they will abandon their investments, just because of public outrage, or stop providing more capital to the firm, if the failure to do so is a complete loss in value. In fact, I believe that Kalanick's resignation today was prompted by investor pressure to move on; they have too much money at stake for them for them to let personal friendship or loyalty get in the way. That said, these investors play the pricing game and much of how investors will react will depend on what the pricing is for the next round of financing. If that happens at a price greater than the most recent round, all will be forgiven and investors will view this episode as a bump in the road to one of the most lucrative IPOs of all time. If not, and this is the biggest risk that Uber faces, you can see a shrinking story (and value) for the company.

The bottom line is that I don't see the events as story breaks. There is the possibility that it is a story change, but that new story cannot be told until we find out who will head the company. For the moment, my story for Uber is mostly unchanged from September 2016 with two shifts: there is now a change, albeit a small one (5%), that the company could fail and I believe that these events have increased the likelihood that Uber will have to follow a more conventional business path of treating drivers as employees (lowering target operating margins). The resulting valuation is below:

Download spreadsheet

The value that I attach to the operating assets stays at the $25 billion that I estimated in September 2015 and 2016, with the additional value of close to $11 billion coming from cash on hand and the Didi Chuxing stake.  Could the new CEO affect this value? Yes, and here is why. Uber's value requires that the company continue to be audacious in its reach for new markets, aggressive in challenging competition and willing to be dependent on new capital for growth. If, as some news stories suggest, Uber's directors are thinking of playing it safe and hiring a corporatist and a rule follower, you may need to reassess the story to a safer, smaller one, delivering less value. This is still a company that needs a visionary CEO, but one with a little more self-restraint than Travis Kalanick.  Good luck with that!

In Closing

My conclusion is that the Uber's value, notwithstanding the sturm und drang of the last week, is intact but at a number that is far lower than investors have priced it at recently. The effect of the last week may be to bring the pricers back to earth, by reminding investors that there is a long way to go for Uber to convert potential to profits. Prior to these news stories, Uber was a rule breaking company with a business model that delivered revenue growth but offered a very narrow path to profitability. After these news stories, the story remains the same but Uber has just made its narrow path even narrower and much rests on who will head the company on this path.

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Blog Posts on Uber

1. A Disruptive Cab Ride to Riches (June 2014)
2. Possible, Plausible and Probable: Big Markets and Networking Effects (July 2014)
3. Up, Up and Away: A Crowd Valuation of Uber (December 2014)
4. On the Uber Rollercoaster: Narrative Tweaks, Twists and Turns (October 2015)
5. The Ride Sharing Business: Is a Bar Mitzvah moment coming? (August 2016)

Uber valuation spreadsheets

1. Uber valuation (June 2014)
2. Uber valuation (September 2015)
3. Uber valuation (August 2016)
4. Uber valuation (June 2017)