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Is Uber Worth $100bn?

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Less than one month ago ride-sharing company Lyft’s debuted on the public market. Now, its main competitor Uber has also filed their S-1, identifying a move towards going public.

 

Although the company chose not to disclose the valuation they are looking for, they are reportedly looking to sell roughly $10 billion in stock. This suggests that the company is worth anywhere between $90 billion and $100 billion.
The numbers are not much of a surprise, as Uber reported revenues of $11 billion in 2018, with a net income of almost $1 billion. However, they also reported adjusted EBITDA losses of almost $2 billion. So, while it is not rare for companies in this situation to seek an IPO, it certainly raises some concerns. In the case of Uber, it seems that the bigger they get, the more they lose money.

 

The path towards profitability is always fuzzy for the unicorn of companies. Yet, $100 billion for a company that never flipped a serious profit smells too much like FOMO – fear of missing out – than a solid business decision

 

Step by step

How the company will reach profitability is a bit of an enigma. However, with estimates of $100 billion for a company that never made a solid profit seems a bit more like speculation than reliable business valuation.
In order to justify at $100 billion value, any investor worth their salt should watch out for the following:

  1. Uber changes gear from slow revenue growth to much more accelerated revenue growth.
  2. An increase in margin increases, especially as revenue grows.  It should be noted that these do not promise a profit coming soon however it is a good sign.
  3. Investors should look at Uber’s main competitor Lyft who has already taken the journey to the stock exchange and see if and why investors justify paying the extra premium for Uber, which if not, gives rise to a reason to be sceptical $100billon.

 

Confidence in Uber taking the road to profitability is key. But, before they can earn their investors confidence, the company needs to work on some improvements. For example, they could get in lane for this road by working on automating their business. At the moment, Uber only receives a small percentage per ride with drivers seeing the biggest chunk. So, the company relies on costly incentives for both drivers and customers, giving Uber a competitive advantage over Lyft.

 

However, if the company manages to replace human drivers with self-driving cars, it may have a positive effect on profitability.

 

Smart cars may be the future

Uber converting to driverless cars is not out of the question. The company invested heavily in AI and autonomous driving and is worth noting that this investment contributed to their losses. But, if they can make investments like this work, the $100 billion price tag can be justified.

 

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However, a major setback for Uber in replacing human drivers with self-driving vehicles include but not limited to government regulations, technical bottlenecks.

 

Learn from the best?

So, while Uber’s IPO launch may be as solid as Amazon’s back in the day.  It is important to note that Amazon is known for investing heavily into growth rather than profitability. However, Amazon has managed to differentiate with offerings, for example, Amazon Web Service (AMS), which accounts for more than 50% of profits.

 

Uber Eats and Uber Freight are examples of the company trying to diversify, as ride-sharing is a ruthless market. So diversification could be the road Uber needs to take.

 

Regardless of what happens in the future, it will not be boring for anyone watching Uber enter the stock-markets. Only time will tell if they can pull off a $100 billion market cap and if it can be sustained.