Here's What A 2017 Uber IPO Could Look Like

Here's What A 2017 Uber IPO Could Look Like

November 14, 2016 Mahesh Vellanki
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At a $68B valuation, Uber is worth more than GM, Ford, Honda, and most other auto makers (save for Toyota, Daimler, Volkswagen and BMW). In fact, Uber is also worth more than most large cap internet companies including titans such as Netflix ($50B), PayPal ($50B), Baidu ($58B), and eBay ($32B). To put things into perspective, the only US public internet companies worth MORE than Uber right now are Apple ($578B), Google ($525B), Microsoft ($462B), Amazon ($350B), Facebook ($350B), and Priceline (just barely at $71B).

Uber is growing incredibly quickly, but losses are also growing. Using public information only, I've cobbled together Uber's revenue and net loss metrics that I found from various press leaks. Naturally, there are some inconsistencies and gaps in the data, and so I made my own estimates where necessary in order to get a sense for Uber's income statement. By understanding their P&L and growth trajectory, we can make some rough estimates for what a 2017 IPO could look like. Let's first look at Uber's quarterly net revenue.

What a growth ramp! Keep in mind that Uber's net revenue is net of paying drivers and so actual GMV is roughly 5x these amounts (~20% net revenue margin). Most of Uber's 2012 and 2013 numbers were leaked, as well as some quarterly metrics for 2014-2016. Growth has always been strong, but there was a massive step function in 2014 and 2015, largely driven by international expansion. Most recently, Uber did $960M net revenue in Q1 2016 and then grew a "modest" 15% in Q2 2016 to $1.1B. These impressive net revenue figures, however, came at a steep cost.

Data for net income (or net loss) is less reported and harder to make estimates for. While net revenue has been growing fairly consistently, losses can spike and narrow at the company's whim and largely depends on factors such as competition, market expansion, marketing spend, and so forth. Regardless, the general trend is captured above. Most recently, Uber lost $570M in Q1 2016 and $750M in Q2 2016. It's unclear whether losses will shrink or grow in the back half of 2016 so I kept them flat at $750M.

Looking at annualized numbers:

Growth rates in 2013, 2014, 2015, and 2016 are roughly 537%, 332%, 280%, and 194%. Uber grew net revenue almost 4x in 2015 to $1.7B in revenue, but they lost $1.9B in net income. In 2016, they grew net revenue by 15% in Q2, and I forecasted an optimistic 20% growth rate for Q3 and Q4, so in aggregate I estimate 2016 net revenue to be roughly $5B, effectively tripling year over year. Making some basic estimates for net income, likely losses will be in the $2.5B-$3.0B range.

Looking at the annual growth trends, it seems like the company will grow net revenue by 100-150% in 2017. That would put net revenue in the $10-$12.5B range, and the losses against that are anyone's guess. The highest 2017 revenue multiple for a public internet company right now is about 9.0x, and that's for Facebook, a company that will generate almost $37B in revenue in 2017 with 63% EBITDA margins. Premium marketplace comps trade at 6.0-8.0x 2017 revenue and are generally quite profitable. Sure, Uber has much faster growth than these public comps, but Facebook is no slouch with 50% growth in 2016.

Let's say Uber does $12.5B net revenue in 2017. At a hefty 10x multiple, Uber would be worth $125B. At a more modest 6.0x multiple, they would still be worth $75B, a hair above their current private valuation.

It's incredibly difficult to value companies growing as quickly as Uber. Their valuation will depend not only on top-line growth but also on how good of a business they have long-term. My guess is that there is enough hype around the company and that public market investors will eat up the growth story. However, that means Uber will have to keep up their torrid growth without any hiccups and convince investors that there is a path to profitability. The global ride sharing market is insanely competitive, riddled with regulatory challenges, and is inherently low margin (autonomous cars anyone?). Given the dynamics, I'm curious to hear how Uber pitches their story to the street and whether they are able to justify their frothy paper valuation.


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