April 12, 2019

Breakingviews: A $100 bln price tag still in Uber’s driving range

by Breakingviews.

A $100 billion price tag is still in Uber Technologies’ driving range. The ride-hailing app just released the prospectus for its initial public offering, which could value it at about nine times 2018 revenue. At least that’s less than the multiple at which faster-growing Lyft went public. Both cash-burning firms face an uncertain road to profitability. Uber’s diversification may help it survive the long journey.

Uber’s sought upper valuation, according to someone familiar with the company’s thinking, is slightly more rooted in reality than its rival’s was. Lyft’s stock now trades 15 percent below its offer price. Account for net cash, and the bigger Uber could go public at roughly the same valuation as Lyft today – its fully diluted enterprise value is about nine times 2018 revenue. The floor for Uber’s valuation could be about $90 billion.

The problem is losses. Uber’s losses hit $2 billion in 2018, excluding proceeds from its sale of overseas business units in Russia and Southeast Asia. Lyft’s losses, meanwhile, jumped to $911 million in 2018. While both companies are growing, there’s little evidence that expansion will generate profit given ruinous competition. Uber’s losses equaled nearly 20 percent of revenue last year, and Lyft’s over 40 percent.

Uber and its investors hope automation eventually replaces expensive drivers, but many firms are racing to develop the technology. There’s no assurance Uber will be first. Worse, success could take well over a decade, and cooling interest among some venture capitalists suggests rising pessimism on rapid adoption.

While Uber’s top-line growth of about 40 percent last year pales beside Lyft’s roughly 100 percent, the company has some advantages. Uber’s $11 billion of revenue in 2018 was five times as big as Lyft’s, so its brand is widely known and fixed costs can be spread more widely. Governance is better, too: Uber got rid of supervoting stock in 2017, as part of its painful process of replacing founder Travis Kalanick with Chief Executive Dara Khosrowshahi.

More importantly, it’s more diversified, with a large overseas footprint. Businesses like Uber Eats, its food delivery service, are growing fast and provide revenue during periods when there’s little demand for rides. And foreign markets offer an option – Uber has sold its businesses in several countries in exchange for stakes in local rivals and recently acquired Middle East rival Careem. In addition to scaling down losses, these investments might provide funds if needed. A few extra gallons of gas might come in handy should a pleasant jaunt turn into a grueling drive for surviva


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