Uber Technologies Inc. investors
contend the car-booking service is worth as much as $40 billion
— more than Twitter (TWTR) Inc. and as much as Delta Airlines Inc.
While that’s a big valuation, it may be justified by the
size of the potential market and how richly other fast-growing
technology companies are being valued.
The five-year-old startup is close to raising a round of
financing that would value it between $35 billion and $40
billion, according to people familiar with the situation, who
asked not to be identified because the details are private.
If Uber completes the funding, it would more than double
its $17 billion value from a June financing round and top
companies such as Twitter Inc. or Hertz Global Holdings Inc.
Applying a price-sales multiple of 18 times to Uber’s valuation
— in line with Facebook Inc. and Twitter — would imply the
car-booking app was producing a little over $2 billion in
revenue, according to data compiled by Bloomberg.
“I don’t want to say it seems reasonable, but it makes
sense in the context of the greater market opportunity,” Sachin Shah, a special-situations and merger-arbitrage strategist at
Albert Fried Co., said in a phone interview. “Just think
about every car service, every taxi cab — not only in New York
City but every major metropolitan city, not only in the U.S. but
in the whole world. Can they generate $2 billion of business
potentially? The answer is it seems that way.”
Mega Financing
The funding talks show that investors’ appetite for growth
wasn’t affected by the fallout from remarks made last week by
Senior Vice President Emil Michael about prying into
journalists’ private lives.
“Uber has done a lot of ill-considered things, but I still
wish I were its investor,” said David Cowan, a partner at
Bessemer Venture Partners.
T. Rowe Price Group Inc. is in discussions to be a new
investor and existing investor Fidelity Investments is also set
to participate in the funding, the people said.
“At this valuation, investors appear to be thinking that
when Uber goes public, it might be worth $80 billion to $100
billion,” said Anand Sanwal, chief executive officer of CB
Insights, a research firm in New York. “This type of mega-financing affords Uber a great deal of flexibility in terms of
when they might go public.”
That would also put Uber at about 1.5 times the
capitalization of microblogging service Twitter and at the same
size as Salesforce.com Inc. and Kraft Foods Group Inc. It would
dwarf car-rental company Hertz, which has a market
capitalization of $11 billion.
“The justification for that valuation can be made given
the financial characteristics and the growth profile,” said
James Cakmak, an analyst at Monness Crespi Hardt Co. “I don’t
know of any other company that’s growing at that pace.”
Record Valuation
Uber is seeking to raise at least $1 billion, the people
said. The financing hasn’t closed and the terms and investor
group may still change, one of the people said. T. Rowe Price
previously considered investing in Uber and may still end up
passing this time, two of the people said. Representatives for
Uber, T. Rowe and Fidelity declined to comment yesterday.
Already in June, Uber’s valuation was a record for a U.S.
technology startup in a direct investment round. That put it at
the front of a pack of elite U.S. technology startups that are
valued in the 11-digit range, including Airbnb Inc. and Dropbox
Inc.
Right Price?
Aswath Damodaran, a New York University finance professor
who published four books on corporate valuation, wrote in June
that Uber was overpriced at $17 billion. Reached by e-mail today
he referred to those blog posts, which “said everything I want
to say” until more data on Uber’s operations become available.
In June, Damodaran valued Uber’s assets at $5.9 billion,
basing the figure on optimistic assumptions about the taxi
industry’s growth and the company’s market share and
profitability. His annual revenue projections were based on
assumptions of a $100 billion taxi market worldwide, a 6 percent
annual growth rate and an Uber market share of no more than 10
percent.
High valuations are spreading internationally. In China,
smartphone maker Xiaomi Corp. is in talks for a funding round
that would value it at $40 billion to $50 billion, people
familiar with the matter have said.
Uber is raising more money to finance its international
expansion, people close to the situation said earlier this
month. The company, founded in 2009 by Garrett Camp and CEO
Travis Kalanick, has rolled out its car-booking services to more
than 220 cities worldwide.
Uber has run into controversies during its fast expansion,
including roiling established taxi and limousine industries and
facing regulatory hurdles. Some drivers for the service have
also complained about the company’s commission structure.
Last week, Uber introduced a rewards program for drivers
and hired law firm Hogan Lovells to conduct an internal review
on its data-privacy policies.
To contact the reporters on this story:
Serena Saitto in New York at
ssaitto@bloomberg.net;
Sonali Basak in New York at
sbasak7@bloomberg.net
To contact the editors responsible for this story:
Pui-Wing Tam at
ptam13@bloomberg.net
Reed Stevenson, Stephen West