Uber Technology über alles

Yesterday, a strike by Paris taxi drivers forced us to improvise. No taxi would take us… and the trains were said to be stopped… so we turned to the internet. We tried a company with roughly $213 million in sales last year…and a valuation over $18 billion. That’s about 80 times sales. Compared to earnings, Uber’s stock is infinitely rich.

Then again, Uber says sales are doubling every six months. And there’s still a lot of business to take from conventional cabs. According to industry experts, Uber took much of it yesterday. The taxi strike in Europe forced travellers, like your editor, to sign up for Uber. The company said sign ups rose 850% yesterday.

The taxi industry is supposed to be worth about $11 billion per year in the US alone. Uber takes 20% of sales revenue collected by its participating drivers. So, if it could get 50% of the US taxi industry, it could expect more than $1 billion in revenue. Most of that would go to the bottom line, we guess, because the company, once established, has few costs. It is just a software program.

But wait a minute, investors seem to expect it will do much better than just half the US market. A billion in earnings barely justifies today’s market cap… and a billion in earnings is still a long way off.

And it may never arrive.

The trouble with high tech is that there is always higher tech. Who knows what apps are out there…ready to eat Uber’s lunch?

But right now, Uber is the latest and, by some measures, greatest entry into the wild, wacky world of technology valuations. It is an innovation that connects the physical world with the world of the internet. You push buttons on your iPhone…and a taxi appears.

It was not obvious, to us, at first, that it would work. No one is more determined or more resourceful than a Frenchman who sees his revenue threatened by innovation. The taxi drivers of Paris aim to stop Uber any way they can.

Read the rest of this article at The Daily Reckoning