I see some upside, although probably less than you. Even if the market ends up being large, though, that only matters if a) they have a large share of it, and b) competition doesn't drive margins to approximately zero.
Facebook and Google are worth a zillion dollars because there is little competitive pressure. GM's market cap is less than 1/10th of Google's because they face stiff competition. Or compare with airlines. The top 3 airlines by revenue bring in circa $120bn per year versus Google's $90bn. But the market cap of those airlines is only $70bn combined versus $729bn for Google.
I think airlines are good comparison for the pseudo-taxi market. Barrier to entry isn't huge, and lots of well funded people like to play in the space. That means that consumer price competition is cutthroat; profit margins and market caps thus stay low.
But Uber's in a worse position than an airline. A 777 or an A380 costs upwards of $300 million, and you need more than one of them to be a plausible airline. For pseudo-taxis, though, you just need some software (likely available via white label), a few drivers in one city, and a bit of local marketing muscle. It costs 3-4 orders of magnitude less to start a 1-city Uber competitor than a regional airline.
And there are an awful lot of people who want a slice of the future transportation pie, including every single car manufacturer (who can have custom cars at cost), every car rental company (which combined have 2m cars and 20k locations, a number of major tech companies (certainly Google, possibly Apple and Amazon, surely others), and possibly anybody with a strong brand (e.g., perhaps Virgin, GE, Ikea, LVMH).
So no, I don't think Uber's valuation was justified. Neither does Softbank, obviously, or anybody else with the money to buy in. But I think it will go lower still.
wpietri|8 years ago
I see some upside, although probably less than you. Even if the market ends up being large, though, that only matters if a) they have a large share of it, and b) competition doesn't drive margins to approximately zero.
Facebook and Google are worth a zillion dollars because there is little competitive pressure. GM's market cap is less than 1/10th of Google's because they face stiff competition. Or compare with airlines. The top 3 airlines by revenue bring in circa $120bn per year versus Google's $90bn. But the market cap of those airlines is only $70bn combined versus $729bn for Google.
I think airlines are good comparison for the pseudo-taxi market. Barrier to entry isn't huge, and lots of well funded people like to play in the space. That means that consumer price competition is cutthroat; profit margins and market caps thus stay low.
But Uber's in a worse position than an airline. A 777 or an A380 costs upwards of $300 million, and you need more than one of them to be a plausible airline. For pseudo-taxis, though, you just need some software (likely available via white label), a few drivers in one city, and a bit of local marketing muscle. It costs 3-4 orders of magnitude less to start a 1-city Uber competitor than a regional airline.
And there are an awful lot of people who want a slice of the future transportation pie, including every single car manufacturer (who can have custom cars at cost), every car rental company (which combined have 2m cars and 20k locations, a number of major tech companies (certainly Google, possibly Apple and Amazon, surely others), and possibly anybody with a strong brand (e.g., perhaps Virgin, GE, Ikea, LVMH).
So no, I don't think Uber's valuation was justified. Neither does Softbank, obviously, or anybody else with the money to buy in. But I think it will go lower still.