Uber has been in the news due to a number of scandals.

ALSO READ: Amazon and Whole Foods: Together Forever

Early this year, Uber lost 200,000 customers in a weekend after the #DeleteUber movement stirred up outrage over the ride-sharing app’s ties to President Trump. Following that, there were reports of sexual harassment, the whole Greyball affair, and a lawsuit over allegedly stolen autonomous vehicle technology. The (former) CEO, Travis Kalanick has since resigned but Uber remains, and their valuation still stands at a lofty $69 billion.

Billion you say?

At their current valuation, Uber is more valuable than companies such as Ford and General Motors – auto companies that have been around since the early 1900s. Not too bad for an app you can download off the iTunes app store.


Get Up To $1,000 in Free Stock with Robinhood--the Commission-Free Brokerage!

Open a new account and receive one free stock valued at up to $500! Then, once your account is open, get more free stocks (value from $5 to $500) for each friend, family, person you refer! USE THIS LINK to get started with Robinhood!

For all the hoopla, Uber remains a deeply unprofitable enterprise. According to Bloomberg, Uber lost around $3 billion in 2016. With that kind of record you might be forgiven for asking the question: Why is Uber still around and why do people think it’s worth nearly $70 billion?

Uber’s story is one of hyper growth, big numbers and ambitions of global domination.

While Uber continues to lose money, they are also growing faster than a weed. They operate in more than 500 cities across 72 countries and as of October 2016, had 40 million active riders. Each rider spends, on average, $50 a month using Uber’s services.


Source: Google Play

They booked $20 billion in rides in 2016, which doubled their bookings for 2015. Their net revenue for 2016 was $6.5 billion, which puts their valuation at 10-11 times net revenue. It’s likely that this is where the $69 billion valuation comes from. Calculating potential value of a business using a revenue multiple, while being somewhat simplistic, is basically standard operating procedure. Take yearly revenue and multiply it by 10 to get an estimate for what the company is worth.

This can be misleading because not all revenue is created equal. There’s a method of valuing companies known as “discounted cash flow analysis” which tries to base a valuation on estimated future cash flows, but this method is unreliable when dealing with young companies and businesses that are growing at a rate similar to Uber. Net revenue for Uber in 2016 was 4x the amount in 2015, which itself represented a tripling of revenues in 2014. That kind of growth is hard to understand, and harder to value.

The truth is there’s a divide. Many startups either get a low multiple (2-4x) valuation and others get a high multiple valuation (10x+). Sometimes it makes sense to slap a 10x multiple on fast growing company and call it a day. Here are some of the criteria that would cause a business to qualify for that high-multiple valuation.

A True Competitive Advantage

The existence of a competitive advantage allows companies to beat away their contenders. In Buffet-speak, a competitive advantage is similar to an economic moat, the special sauce of a business that makes entry into the business arena incredibly difficult for competitors. In Uber’s case, their competitive advantage is their market share and little else. In other words, the only thing they have going for them is the first-mover advantage. They have 80% of the US market and that in itself, is the advantage.

If something were to happen to threaten that advantage, you would definitely see Uber’s valuation tank, perhaps reaching only $20 billion. Uber’s competitive advantage isn’t as clear-cut as a patent on proprietary technology but behemoths like Amazon and Walmart have used similar strategies to great effect. Be the biggest and no one can push you off the podium!

Existence of network effects

The network effect refers to the ideas that a business becomes more valuable as more people use it;leading to a winner takes all scenario. An example is Facebook, whose value comes from the fact that everyone is on it. It’s like being the only bar in town, you know that’s where everyone eventually ends up.

As expected, for a business that relies on network effects, the number of users matter a lot. Users of Uber’s app want short wait times and drivers on the app want fare after fare. The more users, the more drivers Uber can attract. The more drivers there are, the more users will want to use the app. Thus, the virtuous cycle continues.


Visibility, Consistency&Growth

Investors like businesses that are easy to understand, predictable, and have the ability to grow quickly. Uber ticks off all three boxes in that it’s very easy to understand their business model. They take a cut on every ride, plain and simple. The more people that take rides, the more money you make.

There’s also growth – Uber isn’t just a ride sharing company, they’re a logistics and transportation company. When you get to the core essence of what Uber does, it’s easy to see how they can enter different markets and disrupt them. Uber looked at what companies like Seamless and Postmates were doingand said, “We can do that”.  They were able to leverage what they had, in terms of infrastructure and resources, to come up with Uber Eats – their online meal ordering and delivery platform.

Gross Margins

This one is pretty basic, and goes a long way towards assessing the profitability of a company. Businesses with low gross margins, basically the gulf between your costs and your revenues, have low valuations and ones with high margins get high valuations.


This is the one that’s the hardest to qualify. The faster you grow, the larger future cash flows will appear to be.  $500 million in 2014. $1.5 billion in 2015, $6.5 billion the following year? What can you expect in 2017? $20 billion? What about the year after that?

Uber reported revenue of $3.4 billion for the first quarter of 2017. If things hold steady, you can expect Uber to bring in more than $12 billion this year.

Those are some of the characteristics that cause journalists and investors to value companies at a 10x multiple to revenues. Uber checks the boxes for many of these and it’s no surprise that its valuation is where it is. One thing to consider what the company’s strategy is to curb their losses and keep growing in the future. We’re all waiting to find out.





The markets have dropped over 30% since their highs just a few weeks ago because of the Coronavirus, but we are starting to see more signs that this might be a PERFECT BUYING OPPORTUNITY:

#1. HOT Fool Picks in Spite of Crash. Here is why we love the Motley Fool--On Thursday, March 19, 2020 they recommended Zoom Video (Ticker ZM) when it was at $124. Today, March 23 it closed at $160, that's up 29% in 3 days! But that's not all, they also recommended it October 3, 2019 when it was at $77 so that is up 108% since they picked it back in October, in spite of the market crashing 30%. Other recent picks are TSLA, NFLX and TTD which are all UP since they were picked!

#2. Stock Prices Are Down 30%.  This is a good thing! If you are thinking of buying stocks, now's your chance to get quality companies at much more affordable prices. This offers a very attractive entry point, because stocks are ON SALE and you can now buy quality stocks for 30% less than you would have paid for them in February.

#3. More Articles Are Starting To Recommend Buying. As we are nearing the bottom of this drop, we are starting to see more articles like this: BlackRock is suggesting we may be at a "once in a lifetime opportunity", Morgan Stanley says to start buying, and Warren Buffet has a stock pile of cash and rumors are he is starting to buy.

#4. Dollar Cost Averaging Works! Since nobody knows where the bottom will be exactly, smart investors continue to invest a fixed dollar amount in the market each month. This is called Dollar Cost Averaging. That way, when the markets are down you are buying more shares of your favorite stocks at cheaper prices. This helps drive down your average cost and increase your profits when the stock market moves back up.

If you need recommendations for stocks to buy now, keep in mind that the Motley Fool Stock Advisor beat the market by over 30% the last 4 years, and they are currently recommending that NOW IS THE TIME to start buying some of those quality stocks that should make up the foundation of your portfolio. The Motley Fool Stock Advisor service is recommending at least 15 stocks that you should plan on holding for the next 3 to 5 years. So, if you need investing ideas, it is a PERFECT time to consider the best stock newsletter over the last 4 years--The Motley Fool Stock Advisor

Normally it is priced at $199 per year but they are currently offering it for just $99/year if you click this link

P.S. this offer is still backed by their 30-day money back guarantee.
P.S.S. Still skeptical? Read this complete Motley Fool Review.