UBER
📈 Market analysis in 2014 viewed Uber within the broad urban transport market, estimated at $100 billion, considering slow growth in developed countries (2%) but faster expansion in emerging markets (4-5%).
🤔 The core narrative questioned if Uber was merely a taxi service or a potential mobility disruptor, highlighting its efficient asset-light model, network effects, and standard-setting commission structure (80/20).
💰 Aswath Damodaran’s 2014 valuation model suggested a value of nearly $6 billion, starkly contrasting with the market’s $17 billion valuation, highlighting differing narratives and growth expectations, later debated with investor Bill Gurley.
@adriarivero:
“During the video, I’ll use the example of Uber in 2014 with the narrative that the renowned God of valuation, Aswath Damodaran, had at that time, which he discusses in his book ‘Narrative and Numbers,’ which I recommend reading. Imagine it’s 2014 and you’re looking at Uber, a company dreaming of revolutionizing the traditional taxi market. In June of that year, Uber was valued at $17 billion. At that time, the traditional taxi market was fragmented and regulated differently in each city. The key question was: Is Uber just another urban taxi service, or does it have the potential to transform mobility? Damodaran didn’t just look at the taxi market; he expanded his analysis to urban transport in general, analyzing data from major cities and reviewing information from taxi associations and regulators. The taxi market grew slowly in developed countries (2% annually) but faster in emerging markets (4-5%). Traditional taxi companies operated with margins around 15% before taxes, a key figure for estimating if Uber could improve profitability by eliminating intermediaries. Uber’s model eliminated costs like vehicle acquisition and salaries by not owning a fleet, operating with an asset-light structure. Risks included regulations, taxi protests, and bans. This analysis showed Uber’s potential to expand beyond taxis and redefine urban mobility. The story investors told about Uber was fundamentally different from traditional valuation. In 2014, the big question remained: Is Uber just a taxi service or can it revolutionize global mobility? Damodaran structured his analysis around Uber’s business (taxi-like but more efficient), market growth (attracting new users beyond traditional taxi customers), network effects (more users/drivers increased attractiveness), competitive advantages (80/20 commission became standard), and its scalable, asset-light business model. He tested the narrative with the 3 Ps: Probable (operating in cities, growing share), Plausible (expanding beyond cities to car rentals/suburban transport), and Possible (replacing car ownership entirely, though ambitious and uncertain). The triangle of value (growth, risk, reinvestment) was applied: Uber had strong growth dependent on global expansion, risk from regulations and competition, and high reinvestment needs due to unprofitability. Using these drivers, Damodaran estimated Uber’s total market at $100 billion in 2013 with 6% annual growth, projecting Uber could reach a 10% market share. Its asset-light model allowed for potential 40% operating margins, much higher than traditional taxis, with a sales-to-capital ratio of 5. However, its youth and regulatory uncertainty resulted in a high cost of capital (12%), expected to decrease to 8% as it matured. Applying these estimates, Damodaran’s model valued Uber at nearly $6 billion, far below the $17 billion market valuation, indicating extreme investor confidence in future growth. Later, Bill Gurley, an Uber investor, presented an alternative, more optimistic narrative: Uber as a logistics company in a $300 billion market, potentially capturing 40% share. This debate highlights how drastically narratives affect valuation.”
Watch the exact part of the video where @adriarivero talks about Uber here:
Watch the video on YouTube
Read more articles analyzing Uber (UBER) at the provided link. UBER stock.
