The Uber IPO is finally upon us, and it has proved divisive. The critics point to Uber’s billion-dollar losses and SEC filings so meager, a Financial Times commentary called them “an outrage.” A Bloomberg column even questioned the growth of this growth company, noting that the money coming in to the core ride-hailing service appears to have plateaued.
Yet when the company is listed on the New York Stock Exchange, Uber will almost certainly raise something like $8 billion or $9 billion, with a valuation of about $82 billion. How?
Every stock-market pick—and especially every tech IPO—is a bet not on the world as it is, but on the world as it might be. The stock market is applied futurism, and as measured by the divergence between its profits and price, Uber’s story is as compelling as any that have come along since the dot-com boom. People are buying the idea as much as the operation.
Uber, as outlined in its IPO prospectus, represents a vision of the future in which labor will be parceled out by algorithms that match supply to demand in real time. Workers will move fluidly between gigs, untethered to traditional jobs. And at the same time, the market for transportation of all kinds will become unmoored from large asset purchases—such as cars—as well as public services. The new urban paradigm will be private, shared, on-demand services through which you call a ride, hop on a bike, or rent a scooter. In cities across the world, this will prove attractive and spread to other forms of logistics—trucking, food delivery, shipping, drone delivery—and Uber will take an ever larger percentage not of the ride-hailing market share, but of the total number of miles traveled.
Uber argues that it is a platform for workers who want to move things, be it people, food, or freight. New revenue-generating businesses can simply be dropped into that system. These unique opportunities, then, will have gravitational power, keeping drivers and users orbiting Uber’s apps. To that point, Uber has grown Uber Eats into a $1.5 billion business. Perhaps in the future, all kinds of work opportunities and services will flow through Uber. It’s the Amazon analogy at play: yesterday books, today everything; today rides, tomorrow everything. What Amazon is for products, Uber could be for (gulp) work.
Even if you don’t believe Uber’s medium-term story, there is still that deus ex machina of the ride-hailing business: self-driving cars. It’s possible that Uber could develop autonomous-vehicle technology, which could (could!) allow the company to increase its margins, keeping the vast majority of the money that riders pay. By some accounts, this is the mega-happy scenario for Uber investors. Revenue and profit would skyrocket without pesky drivers.
But what then of the vaunted platform? How would drivers respond to the erosion of their livelihoods? The entire dynamics of ride-sharing would change, and who is to say that Uber—a company built on labor-market matching—would be as good at running an autonomous car service as Waymo or others, built as self-driving companies from the ground up?
While far from a sure thing, Uber is probably the lowest-risk way of betting on all this: flexible (precarious) labor markets, the dominance of on-demand services in middle-class life, and eventually the automation of a wide swath of jobs.
That qualitative evaluation has to somehow fit into a spreadsheet to justify a given share price. One way analysts model businesses is the discounted-cash-flow method. Basically, they imagine how much money a company could generate in the future, and they work backwards to come up with a fair price today for those hypothetical earnings. The problem with Uber is that—given that it has never made money—these kinds of models can tell you many different things about the value of the company.
For example, you might try, as the NYU finance professor Aswath Damodaran has, to model the company from the top down. First, you come up with a number for the value of the total transportation market Uber could address, then assume a certain market share for the company, and an uneasy path to profitability. Certain changes to any of these numbers—such as making the total market larger—lead to a much higher valuation for the company.
Damodaran also modeled the company from the bottom up. Here, the questions are simple: How much money will it take to acquire a new user, and how much more money can Uber squeeze from its users? Multiply out the different combinations of those two factors, and you get a puzzling table, with valuations stretching from less than $0 all the way up to $140 billion.
Bizarrely, it’s feasible to imagine almost that entire fan of possibilities. A fully Uberized world could develop in which the company itself has a near monopoly within its core markets. But first, Uber has to win. Lyft grew itself to almost 40 percent of the U.S. market, though Uber was already entrenched. Most drivers I’ve talked to see them as functionally equivalent services, even if they prefer Uber or Lyft for some reason. In China, Southeast Asia, and Russia, Uber proved unable to beat local competitors, and lost billions of dollars trying to do so (though it did keep some toes in these waters).
Then the company must ensure that as it creates an ever larger contingent labor force, societies and governments don’t step in. Already Uber says there are nearly 4 million Uber drivers; in a fully Uberized world, how many millions more would be working through the company? Twenty million? Uber is already one of the biggest targets for organized labor and left-leaning politicians across the globe. Say, for example, that around the world—including in Uber’s most important market, the United States—workers such as Uber drivers become reclassified as W-2 employees (or some new designation that is more expensive for Uber). The company’s SEC filing admits it would be “adversely affected” by that regulatory change, and that’s probably putting it mildly.
The Uber work future—whether with Uber or some other company at the center—has been passed around Silicon Valley as almost inevitable: career to job to gig to unemployed recipient of universal basic income. But change in the world doesn’t happen only because of technological development, no matter what the latest slogan about building the future might suggest. Social movements, political realignments, and cultural tectonics heavily shape the corporate terrain. Uber needs the world that Ronald Reagan ushered in—deregulated, market-driven, individualistic, open for business across borders. Uber could be the carrier of this model deep into the 21st century, or it could be the apex, a harbinger not of the full Uberization of the world, but rather of the point at which the pendulum began to swing back toward a different economic model.
And starting today, you can bet on your vision of the future on the NYSE.
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