I am flattered that so many of you read my piece and felt the urge to respond. To begin with, I hope I did not come through as claiming a monopoly on the truth (and fair value). I tried to make my best assessment of what I think Uber's value is today, given what I know about the company.
It is true that I valued it as a car service company but that is the only business where it has a business model that works right now. As many of you argue, there are potential markets here (moving, car rentals and even car ownership) that Uber could enter. If that is the argument for the extra $12 billion, the pieces are in place to estimate whether you can justify that addition. These additional markets (especially car ownership) could make the potential market much larger, but the question then becomes whether Uber's business model can be expanded into these businesses, while preserving the its profitability. Take, for instance, the driverless electric car market which is the alluring possibility. Even if you are an optimist on this development, I am still grappling with the role that Uber will play in this market and the profitability that will ensue. Will Uber continue to play the middleman role, and if so, who will it be negotiating with? If the electric cars are owned by Google or some other large entity, will Uber have the bargaining power to demand a large slice?
In closing, here are three beliefs that I bring to the table. First, I am a believer that DCF is a tool that can be expanded to cover almost any narrative you may have. Second, I have no illusions about being right, when there is this much uncertainty about the future, but I would rather be transparently wrong (where you can see the assumptions that i have made and change them to reflect your narrative) than to be opaquely right. (I think that providing absurdly large valuation ranges as your base valuation is a cop out, as is making fluffy statements like "I think Uber has lots of potential and is worth a lot") Finally, I think that there is a big difference between pricing (where the number you attach to an asset is what people are willing to pay for it right now) and value. I have a great deal of respect for the pricing process (which is what delivered the $17 billion for Uber) but I also think that pricing is driven by mood and momentum, both of which can get ahead of the facts.
It is true that I valued it as a car service company but that is the only business where it has a business model that works right now. As many of you argue, there are potential markets here (moving, car rentals and even car ownership) that Uber could enter. If that is the argument for the extra $12 billion, the pieces are in place to estimate whether you can justify that addition. These additional markets (especially car ownership) could make the potential market much larger, but the question then becomes whether Uber's business model can be expanded into these businesses, while preserving the its profitability. Take, for instance, the driverless electric car market which is the alluring possibility. Even if you are an optimist on this development, I am still grappling with the role that Uber will play in this market and the profitability that will ensue. Will Uber continue to play the middleman role, and if so, who will it be negotiating with? If the electric cars are owned by Google or some other large entity, will Uber have the bargaining power to demand a large slice?
In closing, here are three beliefs that I bring to the table. First, I am a believer that DCF is a tool that can be expanded to cover almost any narrative you may have. Second, I have no illusions about being right, when there is this much uncertainty about the future, but I would rather be transparently wrong (where you can see the assumptions that i have made and change them to reflect your narrative) than to be opaquely right. (I think that providing absurdly large valuation ranges as your base valuation is a cop out, as is making fluffy statements like "I think Uber has lots of potential and is worth a lot") Finally, I think that there is a big difference between pricing (where the number you attach to an asset is what people are willing to pay for it right now) and value. I have a great deal of respect for the pricing process (which is what delivered the $17 billion for Uber) but I also think that pricing is driven by mood and momentum, both of which can get ahead of the facts.