Perhaps… I actually regret not shorting the company now. But I might still do that before the lockup period expires. I honestly don’t think it’s worth more than $20 per share, and that’s if you’re being quite optimistic.

I would simply try and project out the cash flow into the next 5 years and get an IRR from that. If it’s negative or too low considering all of the business risks, you can always pass on the stock.
In terms of the VC world, I’m not too familiar with their way of thinking. I guess most of them were hoping to get in early and sell out when Uber IPO.

Yes, but you still have to make those future assumptions even if you use metrics such as IRR. All investment analysis is forward-looking.

Yes, the whole point of companies like Uber is that they’re highly speculative and, therefore, have a high chance of losing money. This is why public market investors are skeptical of cash-burning “unicorns,” even if VCs keep pouring in money.

Anyone who’s actually bullish on the company either knows something no one else does or has a very, very optimistic view of its potential.

Some of the problems may be complex, but overall, Uber solves a less complex problem than Microsoft or Google (I was a CS major and still do a bit of programming sometimes).

Google’s ranking algorithm is extremely demanding data-wise and requires constantly changing assumptions and processes to tweak it and get the best results; Microsoft has to deal with tons of different system configurations, 3rd party software, etc., and it is very complicated to make Windows and Office work as well as they do while not taking up a ton of system resources.

By contrast, Uber… matches drivers with riders. With the built-in GPS on phones, it’s just not that hard – you just find the nearest driver in a radius of XX km.

This is why Uber has so many competitors everywhere, while Google and Microsoft have no serious competitors in their core markets – the technical challenges are just too high.

Maybe you could argue that self-driving cars are on par with what Microsoft and Google do in terms of difficulty level, but so far, they’re a pipe dream that do not work well enough to be in widespread use.

I wouldn’t bet on Tesla either way because I haven’t dug into the company’s filings and other documents myself yet. I normally spend at least 40-50 hours doing that before investing in individual companies. And sometimes after spending that much time on the process, I don’t even long or short the company because there are no catalysts, or it’s still too speculative (as was the case with Uber here).

I might consider it in the future if I decide to do a Tesla valuation. But I’m a bit hesitant because valuing Tesla is almost like getting into a debate about religion or politics.

My issue with using a higher terminal value and capital appreciation is that you have to make alot of assumptions about the future health of the company. Some of these assumptions are nearly impossible to figure out or predict with a certain level of accuracy. There doesn’t seem to be a large margin of safety if you were to invest in uber. The entire thing seems to border on the realm of speculation rather than a sound investment in my opinion. Either way great job on the presentation, you took a lot of information and summarize it pretty well in 30 minutes or less. It would be a nice new series financial valuations in 30 minutes or less.

Thanks for responding!

Interesting that you don’t think the problems Uber is trying to solve are complex.

You mentioned Microsoft.

Nathan Myhrvold – MSFTs former CTO – said Uber is working to solve one of the most technically demanding challenges of this generation, akin to operating systems back when Gates and co were starting out (his son works there).

Would you be interested in a Long Bet re: Tesla and self driving?

I don’t think you could get to a $1 trillion valuation *today* based on an analysis done in the late 90s, but valuation can only tell you what a company is currently worth, not what it might be worth in 20 years after all the assumptions change. I think you could probably get to a 20-year Terminal Value in the hundreds of billions based on the numbers from the late 90s, though, especially since Amazon was always closer to being profitable.

“More transformative” wasn’t the best way to describe Google/Facebook. My real point is that they both had more of a moat than Uber. Google solves a ridiculously complex and challenging technical problem that requires hordes of the top CS/engineering people in the world and which can’t be easily replicated (ask Microsoft how that one went), and Facebook has a moat due to the network effects of a social network.

Yes, search engines existed before Google, but they were all terrible. I remember using them on an AOL connection in the 90s, and they were barely functional next to Google. Social networks existed before Facebook, but they were the first one to get it right and then to get a critical mass of active users.

What does Uber have? Drivers and riders can easily switch between different apps and services, and it doesn’t solve a problem that’s even close to as challenging as the one Google solves.

I would bet a significant amount that no one, including Tesla, will achieve full self-driving cars anytime soon. I think there’s a 50% chance that Tesla goes bankrupt or gets acquired by someone else after its stock price plummets some more.

I agree that Amazon is one of the biggest threats to Uber.

I would not use IRR for a company like Uber because you would run into the same issues: negative cash flow, so everything depends on capital appreciation and a much higher Terminal Value in the future. IRR tends to be better for assets that have positive cash flow, such as stabilized real estate, bonds, dividend-paying stocks, etc.

If you did a similar analysis on Amazon’s IPO figures, could you come up with anything close to a 1tt valuation today?

I’m not sure I agree that Google/Facebook were more transformative than Uber – LOTS of search engines debuted around the same time as Google, and social networking had been done as well.

I think because Tesla owns the whole system from manufacturing to energy generation & distribution, Tesla gets to full self driving inside of 3 years, captures the high end of the market, and the rest of big auto throws in the towel and partners with Google for the low end.

(Anthony Levandowski issued a mea culpa and said Lidar is unnecessary)

Amazon takes over the stuff delivering space, and Uber is doomed.