They have very clear business models, but even if they capture 100% of their market the possible revenue can’t support their current valuations.

I think both these businesses are fantastic businesses that will make a lot of money, but I would not buy at their current valuations.

What?

AirBnB's valuation is 25B. It could make a trivial dent in the worldwide hotel market and crush that valuation many times over.

Uber is 50B. The global taxi market alone is worth many multiples of 50B, and that's not counting all the delivery services, bus/public transit-replacements etc that Uber is pushing for.

I'm not saying these companies WILL capture all of their current markets, but it's ridiculous to say the valuations wouldn't be supported if they captured the whole market.

> AirBnB's valuation is 25B. It could make a trivial dent in the worldwide hotel market and crush that valuation many times over.

How defensible is the model when then either don't own the real estate (even McDonalds is famous for making money this way) or have contracts to manage the real estate (as many hotels that are now management companies do).

Right now they may seem to own both the people who have places to rent and the people who want to rent but in no way is that as solid as having actual hard assets (or even long term contracts and most importantly a hotel brand). Or even in the case of an Amazon warehousing and logistics (or owning actual data centers).

These hypothetical situations need to be taken with a grain of salt. Many big companies have tried expanding and taking over other markers, unrelated to their core business - they usually fail or acquire a company in that space(e.g. Google-YT; Facebook-Instagram etc.)

I think that Uber could make a killing as a general delivery service... If you included smaller "hand-offs" for drivers around town, they wouldn't match UPS/Fedex for remote distribution, even overnight, but could definitely be a boon for local businesses.

Many multiples? Try two to three, currently.

"For instance, there seems to be a consensus that the most lucrative cab market in the world is in Japan, where yearly revenues are estimated to be about $20 billion to $25 billion just in Tokyo, followed by the United Kingdom with revenues of $14 billion, the bulk from London, and the U.S. with $11 billion overall and about $3 billion in New York. Assuming taxi revenues in the rest of the world add another $50 billion to this total, I arrive at a total market of $100 billion."

http://fivethirtyeight.com/features/uber-isnt-worth-17-billi...

Uber stands to gain more than the cab market. It steals trips from car ownership and public transit that were never going to be traditional cab rides (cost, inability to hail in less dense neighborhoods, hour plus wait and piss-poor reliability of calling dispatch, etc).

Uber won't capture merely the value of the US cab market, they're going to vastly expand it. People are already using Uber for things that they would never otherwise have tried to hail a cab for due to either cost or inconvenience or annoyance. It has significantly opened up the potential scale of the US taxi market, and will continue to do so. Uber's use is also blatantly going to broaden beyond the classic taxi market, whether that's to autonomous (which will again drastically increase the size of the market by bringing down the cost) and or deliveries.

You might as well pretend AirBnB is only trying to capture the hotel market's value. When in fact they're vastly expanding upon it while simultaneously taking market share away from hotels.

In the hedge fund industry we have a saying, pigs dream of flying and get slaughtered

Even if all this is true, that assumes that no competitors appear and undercut/outcompete Uber. There's no stickiness here - a competing car service would be just an app away.

Is that per-year, or the expected lifetime of a given company? The value of a company isn't the most it can be expected to make in a single year.

Assuming those numbers are all true, we still need to lump in all of the other delivery services and other verticals that Uber/Lyft are attacking.

Then on top of this you've computed $100 billion per year which can easily justify a $50, $100, $150 billion valuation since you'll in theory be getting that $100 billion every single year

The annual revenue for taxis in SF was ~$100MM. Uber's annual SF revenue is estimated to be $500MM. So Uber has "captured" 500% of the market. Does that explain their valuation?

They're not trying to capture an old market, they're building a new one.

Do you really believe that Uber is capturing $500 million out of SF alone? This number is totally unbelievable (and unverifiable), but even if it were true where is the evidence that this is not the result of a pathologically defective taxi market in SF.

edit. The comments on this story sum up the ludicrous nature of this $500 million dollar revenue [1] - $625 per person per year!

1. http://sfist.com/2015/01/19/uber_says_sf_revenues_are_500_mi...

Why is that number not believable? Like the comments you pointed out mention, it's likely gross not post-driver cut, likely includes more than just the 7-mile diameter of SF, includes tourists, surge pricing can be pricy, corporate comping, etc.

I never incur surge pricing and infrequently take Uber yet I can easily pay $100-200 in Uber costs per month. Then you factor in the non-UberX options that are way more expensive, UberEATS, etc. etc...

It is not believable because it is comparing oranges to apples. It is comparing the revenue of the SF taxi industry (not the dollars going through the drivers hands) to the dollars going through Uber for some area of unknown size around SF.

It is also unbelievable if you try to do the bottom up revenue numbers. Uber claims to have 11,000 drivers in SF [1], but most of them are part time. This implies a monthly revenue per driver of ~$3800 at the $500 million revenue number. Actual data from surveying SF Uber drivers working more than 41 hours a week showed they only generated revenue of $2971 a month [2]. The drivers working part time (20 − 25 hours a week) only generated revenue of $1376 a month. I can’t think of a way of making the top down and bottom up numbers agree.

Edit. I fixed the broken link [1].

1. http://archives.sfexaminer.com/sanfrancisco/uber-releases-dr...

2. http://www.sfgate.com/business/article/Lyft-Uber-drivers-tur...

Unfortunately the first link doesn't appear to direct correctly. I'm still willing to think 500M is plausible, with Uber Black and SUV included (is it safe to say these professional drivers make more than 3000/mo on Uber?). Even if it's not quite 500M, or maybe they needed to flub the geography or numbers to get to that number, they're still generating huge sums of revenue in what is only one large metropolitan city out of hundreds around the world.

I have fixed the link. They do appear to be generating a large revenue out of the SF area (my best guess is their real revenue is somewhere between $40 and $50 million), but SF is a very unusual market that is particular suited to a service like Uber. How much it can be used to extrapolate into other markets is an unknown question.

The more fundamental problem is how much profit can they generate. Historically, the taxi industry is not one that has generated large profits without political protection (i.e. medallion limitations). It is very hard to see how Uber will be able to achieve monopoly level profits going forward. As I said in the beginning I think Uber is a great business that will make a lot of money, but it just isn’t worth investing in at its current valuation.

I'd say Zynga has a pretty clear business model.

It's pretty hard to produce new viral games at low cost in a consistent fashion.

GP didn't say it was a good, effective or predictable business model.. ;-)

And Box? They had a simple, clear defined business model.

Great business, great model, simply overvalued (expectations exceeded reality). Probably a winner in the long run IMO.

Their product is a bloated nightmare but maybe that doesn't matter.