Incorrect assumptions/starting points:
* Customers pay Uber, and Uber takes 20 percent of the fare, while the rest goes to the drivers.
[actually, this varies by uber type, and can be significantly less than 20%]
* How you estimate Uber’s future cash flows depends, mostly, on three things: the size of its potential market, the size of Uber’s share in that market, and what percentage of gross receipts Uber takes. The assumptions you make on each question can dramatically affect Uber’s valuation, so let me walk through mine.
[This is correct in that small changes can dramatically affect the valuation, and makes some assumptions about Uber being unable to innovate past its current market segment. Estimating these numbers is basically a poorly educated guessing game, and materially changes the analysis, and thus makes the conclusion poorly substantiated]
* For my base case valuation, I’m going to assume that the primary market Uber is targeting is the global taxi and car-service market.
[ Most of the arguments in favor of Uber's high valuation are around extending the market, not supplanting it, and thus the author completely ignores the entire basis of the valuation ]
* Assuming taxi revenues in the rest of the world add another $50 billion to this total, I arrive at a total market of $100 billion.
[ "Let's just guess at 50% of the market, hand wave." ]
* The bad news is that the market will be tough to dominate. Unlike technology companies in other businesses, like Google, Facebook and eBay, the network effect and winner-take-all benefits are limited.
[ Unsubstantiated ]
* That, along with the regulatory restrictions protecting the status quo and the competition Uber faces from Lyft, Hailo and others, lead me to estimate a market share of 10 percent.
[ Woof, handwave ]
* My instincts tell me that Uber’s slice will decrease over time, but I’m going to make the optimistic assumption that the company will find a way to differentiate itself and continue to claim 20 percent of gross receipts.
[ More handwaving ]
* Other assumptions are going to affect my estimate of Uber’s value: how much it costs to operate the company,3 how much it spends to grow the company,4 the tax rate it pays,5 and how costly it is for Uber to borrow money or attract new investors.6
[ Great, we've determined that small changes in profitability/operating expenses/market size dramatically affect valuation, but let's just guess at all of the major parameters. Not that the author has a better option, just that it makes the conclusion highly suspect ]
Also, though not explicitly mentioned, the author picks an arbitrary return on capital, 10 year time horizon for NPV, and other makes assumptions/simplifications that drastically affect valuation.
Incorrect assumptions/starting points: * Customers pay Uber, and Uber takes 20 percent of the fare, while the rest goes to the drivers. [actually, this varies by uber type, and can be significantly less than 20%]
* How you estimate Uber’s future cash flows depends, mostly, on three things: the size of its potential market, the size of Uber’s share in that market, and what percentage of gross receipts Uber takes. The assumptions you make on each question can dramatically affect Uber’s valuation, so let me walk through mine. [This is correct in that small changes can dramatically affect the valuation, and makes some assumptions about Uber being unable to innovate past its current market segment. Estimating these numbers is basically a poorly educated guessing game, and materially changes the analysis, and thus makes the conclusion poorly substantiated]
* For my base case valuation, I’m going to assume that the primary market Uber is targeting is the global taxi and car-service market. [ Most of the arguments in favor of Uber's high valuation are around extending the market, not supplanting it, and thus the author completely ignores the entire basis of the valuation ]
* Assuming taxi revenues in the rest of the world add another $50 billion to this total, I arrive at a total market of $100 billion. [ "Let's just guess at 50% of the market, hand wave." ]
* The bad news is that the market will be tough to dominate. Unlike technology companies in other businesses, like Google, Facebook and eBay, the network effect and winner-take-all benefits are limited. [ Unsubstantiated ]
* That, along with the regulatory restrictions protecting the status quo and the competition Uber faces from Lyft, Hailo and others, lead me to estimate a market share of 10 percent. [ Woof, handwave ]
* My instincts tell me that Uber’s slice will decrease over time, but I’m going to make the optimistic assumption that the company will find a way to differentiate itself and continue to claim 20 percent of gross receipts. [ More handwaving ]
* Other assumptions are going to affect my estimate of Uber’s value: how much it costs to operate the company,3 how much it spends to grow the company,4 the tax rate it pays,5 and how costly it is for Uber to borrow money or attract new investors.6 [ Great, we've determined that small changes in profitability/operating expenses/market size dramatically affect valuation, but let's just guess at all of the major parameters. Not that the author has a better option, just that it makes the conclusion highly suspect ]
Also, though not explicitly mentioned, the author picks an arbitrary return on capital, 10 year time horizon for NPV, and other makes assumptions/simplifications that drastically affect valuation.