Morning Markets: Is Uber worth $120 billion? Is Lyft $15 billion? If Uber is worth so much, is Lyft worth so little?
Uber was first. Media reports indicated that bankers told Uber that it could be worth $120 billion in a later IPO. The figure, far higher than Uber’s recent private market valuations, led to questions as to whether the sum was likely, or was more of a banker’s pitch for business.
Regardless, the idea that Uber could be worth a lot more than it once was spilled out.
Lyft came second, with a potential $15 billion IPO price tag. As it turns out, $15 billion is only 12.5 percent (an eighth) of $120 billion, but it’s a high figure all the same.
Both companies remain deeply unprofitable. However, their growth profile has made them attractive investments thus far. The two American shops will hope that the public markets will greet them with similar enthusiasm.
But which valuation makes the most sense? Or, perhaps more honestly, which valuation makes the least sense?
120 And 15
Here’s the rough look at both. We’ll start with Uber:
- H1’18 revenue: $5.4 billion.
- H1’18 revenue growth from H1’17: 66.6 percent.
- H1’18 net loss: $1.375 billion1.
- Net margin: -25.5 percent.
And here’s Lyft:
- H1’18 revenue: $909 million.
- H1’18 revenue growth from H1’17: 120.6 percent.
- H1’18 net loss: $373 million.
- Net margin: -41.4 percent.
So Lyft is growing more quickly; however, it’s from a far smaller revenue base. And while Lyft loses far less money in dollar terms as a percent-of-revenue, the firm is even more unprofitable than Uber.
How do we compare the above figures to the valuations in question? We’ll have to do a bit of constructive math magic, but that’s never stopped us before.
First, we need annual figures for revenue and net loss for each firm. Since we don’t have Q3 and Q4 2017 figures for Lyft, we can’t come up with trailing-twelve-month results for the smaller firm. So, instead, we’ll take each firm’s H1 results, double them (turning concrete figures into a run rate-ish figure), and then keep reminding ourselves that our resulting multiples are very conservative as they don’t take Q3 and Q4 2018 growth into account.
We can then bend the figures up to account for said growth. This is what it looks like:
- Uber: Revenue of $10.8 billion (H1’18 x2).
- Lyft: Revenue of $1.82 billion (H1’18 x2).
So, at a $120 billion valuation, Uber is worth around 11.1 times revenue. Now, that may not seem super high given that SaaS companies can command that multiple at lower growth rates. Yet SaaS companies have far higher margins than Uber, so the revenue multiple feels high.
However, if we presume that Uber grows its Q3 and Q4 revenue say, 25 percent from its H1 pace, Uber’s revenue multiple for 2018 top line compared to its 2019 IPO valuation falls to 9.9. That’s under ten. Now, figure that Uber will keep growing into Q1 and Q2 of next year, and the firm’s revenue multiple falls even further.
Lyft, at $15 billion is worth just 8.3 times its above-listed 2018 revenue figure. Bend its Q3 and Q4 up, 40 percent to account for growth later in this year, and Lyft’s 2019 IPO valuation is around 6.9 times its 2018 revenue.
Again, we’re spitballing here, so don’t take any of this very seriously. We’re simply trying to get our hands around the two companies.
Regardless, it seems that Uber is not shooting for a discount of Lyft’s revenue multiple; indeed, the smaller company with faster growth may aim for a lower top line multiple, perhaps given its higher levels of unprofitability as a percent of revenue.
But what we can say from each company’s implied figures is that we’re talking about software company multiples for each. That, I think, implies that both companies are going to work hard to expand their gross margins heading into their offerings. After all, if you want to command a software revenue multiple, you simply have to have the costs of revenue to match.
More when we get Uber’s Q3 figures.
This does not include Uber’s gains from selling off its operations in China and Russia. Mostly, we only had Lyft H1 figures, so we’re looking at Uber’s comparable figures minus one-time gains from market exits.↩