Divining Uber’s New Post-Softbank Revenue Multiple

According to the Wall Street Journal, the Softbank-Uber deal will proceed.

The transaction will see a hefty percentage of Uber shares sold to Softbank at a discounted valuation. Softbank will also invest $1 billion in Uber at its prior valuation, around $70 billion.

It’s up to the market to decide if Uber’s valuation should be $48 billion, where most of the transaction occurred, or around $70 billion, where Softbank put in a comparatively minor sum likely as a political gesture.

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Provided it’s the latter, we have some interesting math available to us: we can calculate an effective, new revenue multiple for the ride-hailing giant.

So let’s do that. We can even use Uber’s recently-released revenue figures for the third quarter. Those digits will help us understand how Uber is valued. And even better, we have some historical data to square our results against. Let’s go!

Revenue

Regular readers of Crunchbase News‘ Uber coverage will recall the evolving process of figuring out which of the firm’s revenue numbers is the most accurate. As it turns out, and we’ll spare you the back-and-forth as to why, Uber’s adjusted net revenue is the correct figure to collect.

Thanks to reporting of Uber’s third-quarter results, and an adjusted net revenue result detailing its Q4’16 result, we have a full four quarters of data to work with. With that, we can add the four quarters’ results together to generate a trailing revenue figure.

Here’s Uber’s adjusted net revenue over the past four quarters:

• Q4’16: $800 million (“around” that figure, per Axios).
• Q1’17: $1.5 billion.
• Q2’17: $1.66 billion.
• Q3’17: $2.01 billion.

That comes to a total of $5.97 billion, conservatively. Presuming that the $800 million figure is light, Uber’s revenue was probably a bit higher than that. We can’t handicap from this distance, however, so we will use what we have in hand. Just keep in mind that all the following figures may be slightly too strict.

Division

Using Uber’s new $48 billion valuation, we can quickly see that the firm is currently worth just about $8 per dollar in trailing revenue.

Fans of SaaS will note that that is quite a steep multiple, meaning that investors are paying quite a lot for Uber revenue compared to what a modern software company could expect to command itself.

And that makes pretty good sense, really. Uber is still growing like mad, and so long as investors think that the firm will be able find a way to profits, its growth is enticing. (We’ll avoid a digression on Uber’s profitability for today.)

But what becomes even more staggering is what Uber was worth, both in raw dollars and regarding its revenue multiple. Uber’s $68 billion isn’t exactly new. The Journal noted in November that “[w]hile Uber has been embroiled in scandals for much of the year, its valuation has remained at $68 billion because it hasn’t raised new capital.” This means that investors gave it that market cap at a time when its real revenue was far smaller.

Using our $5.97 billion adjusted net revenue figure again, Uber was worth $11.40 per dollar of revenue. That number would be higher at the time of its earlier capital raises as its revenue base was smaller.

Or, more simply, investors were willing to pay huge sums for Uber shares before. And now, thanks to the Softbank deal, many insiders were willing to let go of billions of their shares at a lower revenue multiple. That is not wildly bullish.

Context

Going back to 2016, I did some previous work on the revenue multiples of Uber, Lyft, and Ola.

As it turns out, Uber’s revenue multiple has fallen dramatically from prior levels. The firm’s 2013 numbers seemed to give it a revenue multiple of more than two dozen. And in late 2014, the Journal reported that Uber was worth $51 billion after putting $400 million in net revenue on the board. That works out to a trailing multiple of 127.5.

So things have come down a bit as Uber has grown into its valuation. That’s what is supposed to happen, making it not as big a surprise as it might appear at first blush. But it does teach us that a number of Uber investors that previously bought in at rich valuations have done just fine. Prior results are not indicative of future performance, but there’s some method to Uber’s valuation abacus.

Still, Uber’s growing adjusted net revenue and its declining valuation (per the Softbank tender offer at a $48 billion pricetag) imply that the firm is rapidly coming closer to a public-market valuation. And that’s something that matters to its new CEO.

The Future

But all of that is, as they say, spilt milk under the bridge. What matters for Uber is that has secured management changes, picked up more capital, and cut IPO pressure in the short-term. Not bad for a single move. And the valuation haircut remains a debate regarding which valuation will be viewed as material by the market.