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How Shares Are Priced (Uber @ $35)

May 10 45 Comments

A quick primer for stock market noobs:

Companies in similar industries fall within a range of valuation metrics. Since both Lyft and Uber have negative earnings, we can’t use P/E (price to earnings) as the benchmark. Both companies have revenue, however:

Lyft
$3B annual revenue
$15B valuation (market cap)
= 5x revenue multiple

Uber
$12B annual revenue
5x revenue multiple
= $60B valuation
~ $32 share price

So don’t be surprised to see the market value Uber at about $60B until the financial picture changes substantially. My own price target is $65B or about $35 a share.

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 TOP 45 Comments
  • Google ovBk62
    Potential matters too. Uber has a wider market than lyft. Netflix is 10x, for example.
    May 10 4
    • Wayfair Uphill
      Netflix is profitable though right? So different methodology
      May 10
    • OP
      Netflix is an outlier though... P/E around 130 is nuts.

      I do believe Uber will command a premium due to the broader market and multiple verticals. But don’t think it will be huge. More than a 15% premium over Lyft seems excessive. 🤷🏼‍♂️
      May 10
    • OP
      For comparison, GOOG P/E is ~30. NFLX is 4x that. That’s cray.
      May 10
    • Cruise Automation MNpz56
      A premium? After losing all that money. No way
      May 10
  • It’s also about future potential, not just revenue. Whether investors believe the growth plan of the company.
    May 10 2
    • OP
      True, but a revenue multiple of 7x (at 85B valuation) is 40% too high. That’s way out of range.
      May 10
    • Airbnb tsG3j1
      Uber's growth story isn't great either
      May 10
  • Oracle IAExcptn
    It lost $3B last year, and for many other reasons I think it’ll get much worse before it’ll get better.

    Expect $30B valuation.

    Unlike Amazon IPO, for example, Uber is not cash flow positive.

    One ref:
    https://www.marketwatch.com/story/ubers-ipo-is-even-more-dangerous-for-investors-than-lyfts-has-been-2019-04-29
    May 10 0

  • This comment was deleted by original commenter.

    • Uber Xidl
      Eats is already factored in. Didi grab and atg adds another 15-20b imo so 75-80b is fair conservative estimate
      May 10
  • Uber Kumbaya
    Lyft doesn't have 3 billion revenue Einstein.
    May 10 4
    • New going2g
      I think he's basing the revenue numbers on Q1 2019 data.
      May 10
    • OP
      Lyft makes about $750M quarterly rev (projected) and Uber makes $3B. Annualize that.
      May 10
    • OP
      @going2g correct
      May 10
    • Uber Kumbaya
      Okay, Uber business is seasonal and affected by currency. I think the annualized version may not hold up at end of 2019. We will revisit.
      May 10
  • Grab Comeonlah
    You also need to remember ubers stake in Didi, Grab and Careem. All that is also part of the company value.
    May 10 0
  • Google anons2
    Public Companies/ shareholders Won't put up with sustained losses like private investors. Food delivery is a terrible business, and ubers core product is a commodity where users are solely price conscious. Terrible, terrible business
    May 10 0
  • Facebook public2
    Meh, the stock market hasnt cared about book value or normal valuation since the 90s.
    May 10 8
    • OP
      Nobody is using book value to value tech companies
      May 10
    • Facebook public2
      Correct...
      May 10
    • OP
      Why did you mention book value?
      May 11
    • Facebook public2
      Literally the value of a company listed in their book (to over simplify assests minus liabilities). Valuations are often 5 to 10x that but in amazons case 200+ for instance.
      May 11
    • OP
      Do you always never listen to the people around you?
      May 12
    • Facebook public2
      Book value and company value are supposed to be directly related. Stock price times total shares is the valuation. Stock prices haven't reflected real valuations in long time. That was the comment and how they are related (or rather supposed to be)
      May 12
    • OP
      Ha! Okay thanks for clarifying. That’s not true though... not sure where that idea is coming from (the relationship between market cap and book value). Book value is only relevant if the company is highly capital intensive or being liquidated.
      May 12
    • Facebook public2
      That's exactly my point, you dont see any connection between the market value of a business and the actual value. Thanks.
      May 12
  • Facebook thelos
    What is your price target for Lyft based on this same line of thinking?
    May 10 2
    • New Ω
      0$ I feel like both of these companies could cease to exist in like 10 years. Depends how this self driving stuff plays out.
      May 10
    • OP
      This method uses Lyft (most comparable company) to set the benchmark.

      So based on this line of thinking, the price I expect for Lyft is the current price of Lyft.

      However, I do guesstimate that Lyft should trade around $60 a share. (Approx. 17B mkt cap)
      May 10
  • New going2g
    Stock market noob here.

    OP don't you think ignoring the earnings per share favours Lyft here?

    In Q1, Lyft's operating loss is higher than its revenue! Uber's operating loss is 1/3 of its revenue.
    May 10 6
    • OP
      Yeah I agree... this is a very simple benchmark.

      If you want a more accurate valuation, you could calculate more metrics and then triangulate a value that is a combination of more things.

      Personally I don’t know what the path to profitability looks like for either company.
      May 10
    • huh? in 2018 lyft had 2.2B in revenue and lost 900M.
      May 10
    • New going2g
      In 2019 Q1 Lyft had ~750M in revenue and ~1.1B loss

      Their loss in Q1 of this year is greater than their loss for all of last year!
      May 10
    • wrong. 776m revenue, 211m loss in q1 2019. learn to read please.
      May 10
    • New going2g
      I see what you're saying, the article I was reading later mentioned that ~900M of the loss was due to employees' RSUs vesting after the IPO, so it's a one-off loss. No need to be a jerk about it.
      May 10
    • OP
      It’s okay.. everyone is a bit of a jerk when it’s anonymous. Lyft Q1 revenue was 776M and Q2 is estimated 800M so I’m using a french baguette to draw a trendline for my approach. (I round to the nearest 250M) @Moana, if you want to nickel and dime me we can talk about it in person.
      May 10
  • Amazon crypto*
    Why is there a 5x revenue multiple ? How is it decided ?
    May 11 1
    • OP
      Interesting question!

      Why was it 60 degrees at noon today? 🤷🏼‍♂️

      There are millions of participants in the US stock market. Investors seek to allocate capital. Prices adjust in response to demand, sentiment, expectations, information.
      May 11
  • Facebook Mannw
    What was Uber’s stock value in June 2017? I got an offer then but I didn’t join. It was 20k+ number of RSUs. I have wondered if I made the wrong choice
    May 10 1
    • Well, FB stock has gone up a lot since then too. I guess it depends on your FB offer. And Uber’s stock price in 6 months when lockup period expires.
      May 11
  • Expedia Nextwhat
    Uber is going to pop, current down is not just related to uber itself but the market conditions
    May 10 1
    • OP
      UBER is in price discovery phase and not highly correlated with market. Wait a few weeks.
      May 10
  • Wayfair Uphill
    Thanks for the intro, very helpful! So future potential is factored into the multiplier? Is 5x common or high for unprofitable companies at such scale? Any other examples at Uber or Lyft size on the market?

    Curious your thoughts on Wayfair's valuation then at a little under 2x rev (also unprofitable)
    May 10 1
    • OP
      No probs!

      In theory, growth rate is factored into the *share price*

      The revenue multiple is just a simple metric (mkt cap / revenue) used for comparison

      You’d want to find other public online retailers to compare Wayfair. Look for their annual revenue.
      May 10
  • Amazon Yolo!
    Repeat of DOT COM. Difference is, back then companies made no money and now they lose all the money.
    May 10 0

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