Uber, the mobile app that helps you get taxis, is in talks to raise a new round of financing that could value the car-service startup at more than $10 billion, Bloomberg's Serena Saitto reports.
To some people, $10 billion might sound high; to many tech investors, it sounds like a steal.
How can Uber be worth so much money? And how much more can it grow?
There are two things that will propel Uber higher.
1. It's just getting started with its car-calling application. Uber is in only a few markets now, and it's already a smash hit. Imagine when it expands.
2. Uber is more than that: It's also a next-generation logistics company that could ultimately compete with established companies like FedEx or UPS.
If you've never used Uber, here's how it works:
Press a button on your smartphone to summon a ride. A few minutes later (during which time you can chart a driver’s progress toward your location) up rolls the car. The driver doesn't accept cash, not even for a tip. Instead, the app automatically charges the passenger's credit card once the transaction is completed. Then, both the customer and the driver rate each other on Uber's application. (Passengers who leave a driver waiting may see their ratings fall, which can result in fewer drivers agreeing to pick them up.) Uber takes 20% commission on every fare; drivers keep 80%.
We asked tech investors with no skin in the game to explain Uber's growth potential.
"Ten billion dollars seems low to me," one early-stage investor explained. This person said the only other startup with as much upside as Uber is Pinterest. "Global transportation is massive and bigger than $10 billion by many multiples." This person said Uber's growth opportunity is "wild."
Uber has talked about expanding beyond its car-calling app to doing a logistics service. The company recently launched a package-delivery program in New York City that lets users hail bike messengers. It has also experimented with on-demand helicopter rides, flowers, ice cream trucks, and more.
"What we're doing right now is we're in the experimentation phase where you sort of find some interesting ways to do promotions like Uber ice cream," Uber CEO Travis Kalanick explained at a Fortune conference last year. "It's very straightforward for us to basically give [drivers] a phone with an app on it and say, 'Look, when the thing is blinking, hit the screen and go to where the map tells you to go.' And you don't have to pick them up and take them anywhere, just give them ice cream.'"
Kalanick's close friend and Uber investor Shervin Pishevar explained Uber's grand vision to Inc: "Uber is building a digital mesh — a grid that goes over the cities. Once you have that grid running, in everyone's pockets, there is a lot of potential for what you can build as a platform. Uber is in the empire-building phase."
Another investor (not invested in Uber) agrees that a $10 billion valuation is reasonable — if not low — for Uber. That's because the company, this person says, is "highly profitable" and its revenue projections are massive. One leaked revenue sheet showed Uber pulling in about $20 million per week late last year, and its growth doesn't seem to be slowing.
"This is a highly profitable company with a highly profitable and scalable marketplace business model," this investor said. He said he'd heard Uber's gross revenue last year was $750 million with $150 million in cash flow. Projections for 2014, this person said, were $3 billion gross revenue yielding more than $400 million in cash.
"An 8-15X EBITDA multiple range is reasonable, so being worth somewhere between $3 and $6 billion on this year's numbers, with high growth, could easily make Uber worth $10 billion on next year's numbers," says the venture capitalist. "Investors often forward pay."
Uber is not guaranteed to win and dominate the world of logistics. There are other real-time networks, like Seamless or PostMates, that could inhibit Uber's expansion plans. Multiple cities have given Uber legal trouble in an effort to protect cab companies. Competitors like Hailo, SideCar, and Lyft have popped up and gained traction.
Travis Kalanick, Uber's founder, is also somewhat volatile, which could pose problems down the road.
"I would hate to go against Travis competitively. He doesn't just want to win the space, he wants to kill Lyft," a Silicon Valley venture capitalist says.
Another investor explains that while those — Kalanick's personality included — are investment risks, they don't detract from the lofty valuation.
"Uber is winning. The government is moving in their favor rapidly, and Travis hasn't hurt Uber yet," this person says. "There is no reason it won't be a $100 billion company in the next three to five years."
Tech investor Semil Shah agrees. "Uber could most certainly go public yesterday — but why would they want to? No incentive. $100B potential company," he recently tweeted.
Uber declined to comment on the funding rumors.
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Alyson is the Editor-in-Chief and CCO at Fortune. She was previously a co Editor-in-Chief overseeing Business Insider's tech and business coverage.She joined Business Insider in July 2008 as the company's sixth employee. She started as a sales planner before joining the editorial team in 2010, where she became a startup reporter and was first to cover some of today's largest tech companies, including Pinterest, Tinder, Instagram, Uber and Snap. Alyson rose to become a senior correspondent, then Executive Editor.She was appointed Editor-in-Chief of Business Insider in 2016, at which point she became the youngest and only woman to run a global business publication. Under her leadership, the business division has grown to hundreds of millions of monthly readers.Alyson was a host of Insider's conferences and launched a podcast, "Success! How I Did It," where she interviewed influencers ranging from Sheryl Sandberg to Steve Ballmer about their career paths (subscribe on iTunes here).She has appeared on ABC, Good Morning America, Al Jazeera, MSNBC, CNBC, CNN, and CBC, and she has interviewed media personalities such as Megyn Kelly, technology leaders like Fred Wilson, political leaders like John Brennan, and sports star LeBron James. She is a judge for the prestigious Gerald Loeb Awards in business journalism, and has been named one of Min's Rising Stars in Media, as well as Folio's 2017 Top Women in Media.She graduated from Syracuse University's Newhouse School of Public Communications, where she majored in psychology and advertising.You can read some of her investigative articles here:— Leaked videos reveal the true founding story of Snapchat— The founder who dumped Jared Kushner: Inside the phone call that left the White House star in a fit of rage— The downfall of billion-dollar startup, Fab— How a startup that raised the largest seed round in Silicon Valley history blew itself up before it even launched— The dark side of Facebook, where people lie, cheat, and make millions— A profile of Uber's controversial CEO, Travis Kalanick— The mystery of Jody Sherman, a founder who was driven to suicide and left behind a shocking business disasterDisclosure: Alyson owns bitcoin and Snap. She is also an investor in The Spun, a sports-media startup founded by her husband.