This is an interesting rebuttal to Uber's valuation that was posted here awhile back. What do you think? (link inside the post)
How to Miss By a Mile: An Alternative Look at Uber’s Potential Market Size
July 11, 2014: On June 18, Aswath Damodaran, a finance professor at NYU’s Stern School of Business, published an article on FiveThirtyEight titled “Uber Isn’t Worth $17 Billion.” This post was a shortened version of a more detailed post he had written for his own blog titled “A Disruptive Cab Ride to Riches: The Uber Payoff.” Using a combination of market data, math, and financial analysis, Professor Damodaran concluded that his best estimate of the value of Uber is $5.9 billion, far short of the value recently determined by the market. This estimate of value was tied to certain “assumptions” with respect to TAM (total available market) as well as Uber’s market share within that TAM. And as you would expect, his answer is critically dependent on these two assumptions.
As the Series A investor and board member at Uber, I was quite intrigued when I heard that there was a FiveThirtyEight article specifically focused on the company. I have always loved the deep, structured analysis that Bill Simmons and Grantland bring to sports, and when Nate Silver also joined ESPN, I was looking forward to the same thoughtful analysis applied to a much broader range of subjects. Deep research and quantitative frameworks are sorely lacking in today’s short attention span news approach. I could hardly wait to dive in and see the approach.The funny thing about “hard numbers” is that they can give a false sense of security. Young math students are warned about the critical difference between precision and accuracy. Financial models, especially valuation models, are interesting in that they can be particularly precise. A discounted cash flow model can lead to a result with two numbers right of the decimal for price-per-share. But what is the true accuracy of most of these financial models? While it may seem like a tough question to answer, I would argue that most practitioners of valuation analysis would state “not very high.” It is simply not an accurate science (the way physics is), and seemingly innocuous assumptions can have a major impact on the output. As a result, most models are used as a rough guide to see if you are “in the ball park,” or to see if a particular stock is either wildly under-valued or over-valued.
http://abovethecrowd.com/2014/07/11/how-to-miss-by-a-mile-an-alternativ…
The problem is that if Uber drops fares to 50% of a taxi, they have to provide twice as much service as all taxi providers have been offering to get the same revenue. That's assuming they completely run the cabbies out of business and become the only game in town.
So just how elastic is the demand for car rides? If the price comes down by 50%, does demand double? What about all of the people who have cars and parking spots already? And what does Uber do to other high-flying consumer discretionary firms with crazy market-disrupting potential like Zipcar? What does the threat of the next Uber do to Zipcar... err, Uber?
Honestly, I think there could be an argument in 5-10 years that all of these new, cool, high valuation consumer discretionary stocks aren't worth all that much and will just be replaced by a newer, better firm in a just a couple years years. In which case, the answer is to buy boring value stocks that can't be replaced as easily.
If we are facing disruption after disruption in the consumer discretionary market, the one constant is the demand for energy, for commodities, for utilities, for real estate and infrastructure. I think that once investors begin to get this, revenues beyond 2-5 years will begin receiving much bigger discounts and we'll go back to more of a value-oriented equities market. It's fricking scary to short these stocks though, so the best you can do is go long low-beta and value and stay a little underweight on the tech/ consumer discretionary boom.
I'm still shocked that GoPro gets a $3 Billion valuation when Drift makes a better product and has more momentum among some of the most respected guys in extreme sports (at least in hang gliding and motorcycle racing). I don't see how GoPro is going to keep this up with an inferior product and weaker marketing. I'm nearly as shocked and appalled that (the ethics of letting pre-teens send private pictures to boyfriends and girlfriends aside) Snapchat turned down a $3 Billion offer from Facebook.
There's no point in buying the coolest trend. The coolest trend probably just requires plastic or gasoline, but will probably switch in anywhere from 6 months to 3 years to another cool trend that requires plastic or gasoline. In which case, that's good news for Chevron or Exxon or BP or Total, which are all trading at around 12x earnings vs. 100x for most of the high-flying consumer discretionary stocks.