How Uber Has Earned a Surprising $40.0-Billion Valuation
Many companies get their start by capitalizing on an untapped niche market, but few have upended an entire industry like Uber. Fewer still have been as polarizing. Toss in a valuation of $40.0 billion and you can see why so many investors are hoping Uber lists publicly in 2015. But what is it about Uber that has made it such a potent company and perhaps one of the most highly anticipated initial public offerings (IPOs) of 2015?
What Is Uber?
Founded in March 2009, Uber is a smartphone app that connects drivers with people who need a ride. And it seems a lot of people are keen on the world’s simplest business plan. At the end of 2013, Uber was operating in 60 cities and 21 countries. Today, it is in more than 250 cities in 50 countries.
On top of that, the company is six-times bigger today than it was roughly a year ago; and it grew faster in 2014 than it did in 2013. In 2015 alone, Uber expects to generate more than one million jobs.(1)
How Does Uber Make Money?
It’s really quite simple. Uber keeps 20% of every transaction. How much does Uber make from that 20%? According to some sources, Uber’s gross revenue is expected to hit about $10.0 billion by the end of 2015.(2) That translates into roughly $2.0 billion in earnings.
And the future continues to look bright. Uber’s annual growth rate was in the neighborhood of 300% in 2014 and is expected to be another 300% in 2015.
In addition to ferrying people around, the company is looking at expanding its services to allow its fleet of drivers to transport goods and services. First it’s the taxi industry; next, it’s the delivery companies. Eventually, it will be the movers.
But it seems to be doing just fine for now dealing with people. In June 2013, Uber raised $1.2 billion, which valued the company at $18.2 billion.(3) This past December, the company raised another $1.2 billion, lifting its valuation to over $40.0 billion.
This latest valuation is twice the amount set by investors this past summer and more than 11 times the 2013 valuation.
That doesn’t mean Uber is in for a gentle ride.
Uber a Magnet for Bad Press
Despite—or maybe because of—its simplicity, Uber is also a magnet for bad press. The company itself has come under fire for how it uses ride data and an Uber executive recently alluded to the idea of digging up dirt on reporters that shine a bad light on the company.(4)
If only it stopped there…
The company’s ability to successfully screen drivers has come under (justifiable) scrutiny after a driver in India was accused of sexually assaulting a passenger. In Chicago, police are investigating similar charges.
Uber has also run into compliance issues in New York City, has been suspended in Portland and Nevada, and has been banned in Spain, India, Thailand, and The Netherlands.(5) Naturally, Uber executives contend that they are operating under outdated laws and expect things to change once lawmakers see how popular Uber is.
Despite the bad press, hedge funds, banks, and well-heeled investors continue to hand over money. In addition to the $1.2 billion it raised in December, the company is expected to raise a further $600 million during the first quarter of 2015.
The company will be using its payday to entice drivers, further develop its existing infrastructure, and expand operations into additional cities. Uber recently announced it is available in the Eastern Province in Saudi Arabia; Bahrain; Alberta, Canada; Vietnam; Bulgaria; and Columbia.
What’s Ahead for Uber? Is an IPO in Sight?
With a rapidly growing international footprint, expanded delivery products, incredibly robust sales, and venture capitalists lined up to hand out money, it’s not impossible that Uber, if it decides to hold off on its IPO for another year or two, could have a valuation that trumps $100 billion.
If Uber does IPO this year, look for income-starved investors to try and cash in on a tech company that is making money hand over fist.
But can Uber keep up its massive growth trend? If not, Uber could end up disappointing investors—much like any number of high-profile tech stocks have over the last couple years.