On-demand services platforms: Bubbles or real value?


A few minutes ago, I read an article about Uber replacing one-to-one yellow taxis in Manhattan. It seems no week goes by without a new big headline regarding some Uber development. I am very interested in the shift Uber created in the world, it’s revolutionary platform, and all its global battles.

A new term has emerged due to Uber’s success and worldwide attention: ‘uberfication’, “the process of booking a service with only using a few button presses on a smartphone. These on-demand services are profligerating, leading to shake-ups in existing industries and introducing these services to people who may not have considered them before.” (ZDNet). The shared economy is revised and many companies from all parts of the world are trying to get a little part of the ‘pie’, leading to a flood of on-demand service platform available to consumers. Need help to clean your house? There is Helping to help you out. You need a car on demand? Smove is your thing. Do you think it’s time for you to have personal butler? Here you go: a few touches on your phone and he is on his way through the service platform GoButler.

Our course (and probably many other business courses) dive into the power of service platforms such as Uber, its business model and future projections. However, it seems that no one can get a hold of the future of on-demand service platforms like Uber. We should not forget these services are only a form of very modern intermediaries, earning some percentage of each transaction, but not owning any assets or housing skilled personnel at the supply side.

I present to you 3 valuations for Uber, from 2013 until now:

Business Insider – August 13th 2013 – The Vision For $3.4 Billion Uber Is Much More Than Just A Car Service, And It Could Vastly Improve Our Lives

Forbes – July 9th 2014: Are Investors ‘Nuts’ To Value Uber At $18 Billion? In A Few Years, That’ll Seem Like A Bargain

Engadget – August 1st 2015: Uber reaches $50 billion value thanks (in part) to Microsoft

An increase of an approximate 46.6 billion US dollars in 2 years. Yes, skyrocketing! Why? How? Is this justified? Questions many economists are trying to answer.

Professor Aswath Damadoran, Kerschner Chaired Professor of Finance at the Stern School of Business at New York University recently was featured in an article on TechCrunch revising his own valuation of Uber and providing an explanation. Based on his findings and elaborations, I would like to share his rationale with you all:

In short, Damadoran realized he took his valuation of Uber in 2014 (just under $6 billion) too narrow. There are a few reasons for this:

  • Going global: the ride sharing market exploded in regions like India and China
  • Not just urban: it seems quite logical that Uber would be limited to dense, urban areas. Yet, Uber seems to have made a big entrance in suburbia and exurbia in the US.
  • New customers: a lot of people who have never participated in the car service market entered due to the success of Uber.
  • Diverse offerings: car service platforms do not simply offer cab service, but have expanded alternatives such as car pooling services and high luxury transportation.
  • More disruption: Uber moved into businesses like logistics and food delivery. Disrupting!

His new valuation $23.4 billion…. Not bad for an intermediary!

Surprising since Uber is still making a loss on each journey. Although the company itself requires minimal capital requirements, Uber’s business model experiences high costs to sign up drivers, free agents without contracts.

My question to you, how do you valuate a company that has no assets (surprise me!)? Do you believe Uber, the first-mover, will survive? Do you believe we will live in a shared, on-demand service based, economy with services operated by freelancers two touches away?

Looking forward to read your thoughts!

Sources:

http://www.zdnet.com/article/uberification-in-singapore/
http://www.theweek.co.uk/business/57184/uberfication-everything-sharing-economy-here-stay
http://techcrunch.com/2015/06/28/why-your-next-package-will-be-delivered-by-an-uber/
http://ubereats.com/eats/la/
http://techcrunch.com/2015/10/10/valuing-uber/

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