347 647 9001+1 714 797 8196Request a Call
Call Me

Uber Success Story – Financial Valuation

June 19, 2014
, , , , ,

Transformation of Uber from a Start Up to a million dollar company in just four years – Insights!!

Uber is a venture capital funded startup based in San Francisco that uses mobile app as a platform to reach out to its customers, thus providing them hire and ridesharing taxi services. The company arranges pickups in dozens of cities around the world.

Recently Uber made news when in June 2014,Uber completed a round of funding, thus valuing the company at around $17 billion. This signifies a huge figure for a startup who does not own cars or other material equipment. Even the drivers who work for Uber have been absorbed as part time and not full time employees. Uber is less about taxi service and more about efficient use of logistics.

Analysis from Investor’s viewpoint:

There is a possibility that the investors like Fidelity Investments etc who have recently funded Uber can lose money or end up in a loss. However, we can attribute two reasons to negate this possibility.

First, Fidelity and other investors have invested in Uber’s preferred stock and not in the common stock. Preferred investors have the first right to own the liquidated assets in case Uber goes bankrupt. In most probability, investors will get their money back even if the company sells at a valuation which is much lower than the one at which they invested. In case of a preferred stock, the downside risk to investors is limited however the upside potential is generally unlimited.

Secondly, we know that the revenue growth of Uber has been skyrocketing since last four years when the company began operations. Uber’s gross revenue has been touted at $10 billion. Also, Uber only keeps 20% of the revenues and distributes the rest to its drivers.

Going by the mathematics, the net revenue available to Uber after distributing to drivers is $2 billion. This means the current valuation of the company i.e. $18 billion dollars is 9 times the revenue, thus averaging the revenue multiple of Uber as 9.

Considering the market scenario, 9X multiple of Uber is worth appreciating. Just for comparison, LinkedIn is trading at 15X and Facebook is trading at 20X. Uber’s revenue is growing at a tremendous pace. The revenue multiple of 9X has been achieved in merely four years which is indeed a breakthrough in the history of startups.

Million Dollar Question – Is the current growth Sustainable in near future?

For the sake of analysis, let’s consider the following worst case scenarios:
  • What if the costs for booking Taxi rises?
  • What if the drivers start demanding higher salaries?
  • What would happen if the regulation on Uber tightens and subsequently the customers have to bear the brunt?
  • What would happen if there is a need to invest greater amounts in training drivers?
  • Or because of increased demand of its services, Uber has to finance fleets of vehicles so as to control its quality of service.

We need to take into account the fact that whether users of a taxi app would actually look to the same service (Uber’s) for future deliveries.

Taking all the above reasoning into account, it is advisable for Uber to focus on the short term and aim at sustaining the growth momentum rather than diversify into other business lines (as announced by its CEO, Travis Kalanick in 2012) which may or may not successfully materialize one day.


About the Author

Prior to co-founding EduPristine, Pawan has worked as an investment banker with Standard Chartered and Basel II Consultant with Crisil - A S&P Company. He has worked extensively on company valuation, price negotiation and taking companies public. He holds an engineering degree from IIT Bombay and MBA in finance form IIM Indore. He has written articles on finance for a national daily and a few portals. and takes lectures on finance for various corporates and B- Schools.


Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to and we will rectify it.

Popular Blogs: Whatsapp Revenue Model | CFA vs CPA | CMA vs CPA | ACCA vs CPA | CFA vs FRM

Post ID = 57321