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I can't tell if this is a good deal for Uber investors or not. As I understand it, Uber will own a 20% share in the combined company. The combined company is va

I can't tell if this is a good deal for Uber investors or not. As I understand it, Uber will own a 20% share in the combined company. The combined company is valued at $35 billion, so Uber's share of the value will be $7 billion (actually less, since they also need to share it with Baidu which invested directly into Uber China too). $7 billion doesn't sound too bad as an exit. However, if Uber's China business is worth only $7 billion, and their current valuation is $68 billion, does that mean the rest of the world is worth 9x China, even though China is one of their largest and highest potential market? Suddenly the valuation of Uber's business outside China looks very inflated (even more than before). Doesn't it?

johnloeber 10y ago
Uber's China business was losing money before (I believe to the tune of about $1bn/year), and it looked like they weren't going to get a permanent hold in that market. Local competition was very strong. Consequently, I would conjecture that China was never a large part of Uber's valuation. Leaving it at slightly more than 10% of their valuation seems reasonably realistic to me. Keep in mind: * The major Chinese cities generally have very developed and efficient systems of mass public transit, reducing demand for rideshares (and cars in general) * While China is a large country, not everyone can afford an automobile or a rideshare service. There are many reasons why scooters are so popular in SE Asia; this is one of them.
- dilemma 10y ago
  Startups are valued by potential so have Uber China's future value be capped at 1/5 of Didi is certainly a downer on its total value - this is the world's largest consumer market. The points you make about the Chinese market look completely off to me.
- eva1984 10y ago
  Apparently without Chinese numbers, it is hard for Uber to further blow up its growth story, according to itself, China has generated more rides than US daily.
- seanmcdirmid 10y ago
  Ride sharing is a huge deal here. I use it daily, my wife more so, most of the people I know use it. Car ownership is low, but that created even more opportunity here. And it's not like there was a healthy volume of taxi/black car activity before, the apps have just made it way convenient and much nicer. This will be the biggest market for uber like services, if it isn't already. But it is also way cheaper here, so that changes the dynamics a bit.
  - shimon_e 10y ago
    Biggest volume and lowest prices.
- mahyarm 10y ago
  Didi was also losing a lot of money. It was a big cash bonfire race to have the biggest market.
- rahimnathwani 10y ago
  "The major Chinese cities generally have very developed and efficient systems of mass public transit, reducing demand for rideshares (and cars in general)" This depends on your frame of reference. If you're comparing with SF, sure. If you're comparing with London or New York, less so. In London, the underground is faster than private car for many (most?) daytime journeys. In Beijing and Shanghai, a private car is almost always faster. Subway stations are spaced too far apart, and the walking involved in changing lines is pretty long. Buses are slower than cars even at times when bus lanes are active. "While China is a large country, not everyone can afford an automobile or a rideshare service." The people who don't have cars are precisely the people who use rideshare services. Compared with the West, in China, ridesharing fares are lower, and the cost of owning+operating a car is higher. I ride Uber 10-15 times per week. The total cost of those rides is 20%-30% of what it would cost to lease and operate my own car, even if parking were free (which it's not).
  - johnloeber 10y ago
    Regarding the second point: sorry, I wasn't being clear. I think that the pricing probably goes like this: owning/operating a car > using a rideshare > using a personal scooter > using a personal bicycle. You have to keep in mind that bicycles, scooters, and other small vehicles unsuitable for ridesharing are very popular in China. Since few people own and operate cars, rideshares don't have a large market to undercut.
    - rahimnathwani 10y ago
      My primary reason to get an electric scooter wasn't cost: it was availability. Hailing a taxi is often almost impossible, but a scooter is always ready when you are. But ridesharing means I almost never have to worry about availability, and now my scooter is gathering dust.
    - chj 10y ago
      In some cities ... > using a personal bicycle > public bicycle
  - theseadroid 10y ago
- discodave 10y ago
  > Uber's China business was losing money before (I believe to the tune of about $1bn/year) > I would conjecture that China was never a large part of Uber's valuation These two statements are not exactly congruent. Investors in later funding rounds would have expected their investment to be used to grow the valuation. In other words, they were funding the losses in China so they should expect a return.... unless they were just investing in Uber due to FOMO.
  - rtpg 10y ago
    Here's a narrative: "If we spend a billion in China now we'll make it!" (Year later) "Lots of competition but this time it's different!" (Something something China) "OK maybe this isn't working out. Let's salvage what we can"
- lziest 10y ago
  As a Chinese national, I disagree. Taxi experience in big cities in China is generally better because of heavier regulation and competition. In many medium to small cities, it is far worse. Now note Uber only compete in big cities while Didi has already been operating in many smaller cities with large market share. Yet Uber still fails to expand to where ride hailing by app should be popular and desirable. Scooters? Everyone hates them. Personal experience: my hometown is a medium city (with a population of ~3 million in urban area), the taxi system there is so broken. Because of the medallion system, to maximize the profit/cost ratio, taxi drivers usually operate their cars 24 hours a day with two shifts. Day shifts are usually taken by locals, and they will try their best not to serve you if the trip goes through traffic-jammed area or remote places. I understand their economic reasoning though. The worst part is every afternoon from 4pm to 6pm, when shift change happens, every taxi driver will refuse your ride request unless you happen to be ride sharing with them to their shift change stops(pretty ironic I think). So as a rider you basically beg for a ride. That's how Uber/Didi win. You don't beg, you don't worry, you don't get pissed off. You uses an app then you get on a car with better fare (thanks to those steep discounts) Remember, this is just one city with population of 3MM, there are more than 100 of such cities (with population of 1~3 million) in China. But Uber is not operating in my hometown, let alone many others. Uber is slow to adopt Alipay or Wechat pay. Uber is slow in expansion.
  - hueving 10y ago
    > Taxi experience in big cities in China is generally better because of heavier regulation and competition. The taxi experience is the US is bad because of heavy regulation without competition. Competition is the only thing that helps.
  - evanrich87 10y ago
    Slow to adopt WeChat is incorrect. WeChat blocked Uber from the app because Tenecent is one of Didi's largest investors: http://venturebeat.com/2015/08/24/ubers-wechat-drama-exposes-the-unique-challenges-of-winning-in-china/ http://venturebeat.com/2015/08/24/ubers-wechat-drama-exposes...
    - 10y ago
- jgalt212 10y ago
  > I would conjecture that China was never a large part of Uber's valuation. I would conjecture the opposite as Uber investors were pitched on the China growth story > Four out of the top 10 are now in China, according to an email sent by Uber CEO Travis Kalanick to investors and obtained by the Financial Times. > In the request for money from investors, Kalanick explained just how fast the company is growing: > Passengers in China are taking 1 million trips per day. Uber is in 11 cities in China, but plans to launch in 50 more cities that have a population of more than five million this year. These are all cities comparable to the size of Miami, Kalanick said in the email. > Four out of Uber's 10 largest cities are in China. > After nine months in Chengdu, the city is seeing 479 times the number of trips that New York did at the same mark. Hangzhou is 422 times larger than New York at the same nine-month mark and it is adding 200,000 residents a week. > The company is planning on investing more than $1 billion into UberChina, which goes by YouBu or "an excellent step forward", locally. > It is now the largest market outside of the U.S., and "at the current growth trajectory, will most likely surpass the US before year-end," Kalanick said int he email. http://www.businessinsider.com/uber-china-growth-2015-6 http://www.businessinsider.com/uber-china-growth-2015-6
azernik 10y ago
A general approximation in business is that the non-US market is 5-8x the US market. So if the world market is only 9x the China market, I'd consider that a very big deal.
- eru 10y ago
  Is that an approximation for US businesses?
  - azernik 10y ago
    Yeah - used to (once you've worked out the size of the US market) get a vague feel for the international possibilities. Very rough first-order approximation.
fuzionmonkey 10y ago
It's not a $7 billion "exit". It's an investment for a 20% stake in Didi for $7 billion, which presumably will increase in value as Didi continues to expand in China, especially with less need for ridiculous spending on driver incentives since they will no longer be competing with Uber. Uber probably had something in the ballpark of 20% market share in China so it sounds like the two decided to simply make peace and become profitable together instead of duking it out for years on end and throwing away billions.
- sk5t 10y ago
  Suppose you spent $1B on a factory to make blenders + blender marketing + distribution channels, etc. Later, you invest $200MM in another blender concern for a 20% stake. How do you value / account for the first $1B in sunk costs?
  - argonaut 10y ago
    You answered your own question? You don't - it's sunk costs.
  - fgonzag 10y ago
    As a loss obviously, a sunk cost is exactly that: sunk
- 20andup 10y ago
  Its not a 20% stake. "Uber Technologies will receive 5.89 percent of the combined company with preferred equity interest equal to 17.7 percent of the economic benefits."
- deleted 10y ago
  [deleted]
rahulgulati 10y ago
One of the factors for Rest of the world vs China gap could be the ticket size of a cab ride. A 5km Uber ride in India/China/SE-Asia costs $1.5 on an average, while in developed countries its $15 on an average (10X). So, I guess, it's value over volume for Uber and markets that are on fast-track to profitability. source - http://www.priceoftravel.com/6536/price-of-a-5-kilometer-uber-ride-around-the-world/ http://www.priceoftravel.com/6536/price-of-a-5-kilometer-ube...
- yomly 10y ago
  Spot on - ubers in China were easily 70% cheaper for me (coming from the UK). I don't think the volumes were appropriately bigger. Also seemed like Uber were going wild at the time - Easter weekend was totally free for all riders all weekend iirc.
robk 10y ago
I think this is exactly right. It's a decent face saving move for Uber to have some sort of outcome in an otherwise very very difficult market where they were losing. Seems like the investors in Uber China could have done better to just put the money directly into Didi though. I guess the upside was it got them into the parent company though, which otherwise they may not have had access to.
robk 10y ago
Didi was last valued at $28b according to press from June. http://www.forbes.com/sites/ywang/2016/06/17/didi-in-valuation-fantasy-land-with-new-7-bln-funding/#200b38b27e94 http://www.forbes.com/sites/ywang/2016/06/17/didi-in-valuati...
EGreg 10y ago
Apple win!
georgeecollins 10y ago
This is how you realize that the $68 billion value is suspect?
fullshark 10y ago
Looks like a good deal to me because continuing to fight Didi in China was a losing proposition. Also they now own 20% of the dominant chinese ride hailing company.
aetherson 10y ago
As always with Uber you have to understand the relative, not absolute, situation. Uber needs to not just be successful, it needs to be MASSIVELY successful. It's valued at north of $60B! If it makes a bunch of modest deals that are successful to the tune of making a 15% return on investment, and that investment is $2B, then it needs like 20 of those deals to justify its valuation, much less to grow. At risk of pointing out the obvious, there aren't 20 Chinas. And Uber doesn't have $40B to spend on a series of 20 $2B deals. Uber's entire existence for at least the last five years has been predicated on being a major global game-changer. Anything that is less than "major global game-changer" for them is a failure.

johnloeber 10y ago

Uber's China business was losing money before (I believe to the tune of about $1bn/year), and it looked like they weren't going to get a permanent hold in that market. Local competition was very strong. Consequently, I would conjecture that China was never a large part of Uber's valuation. Leaving it at slightly more than 10% of their valuation seems reasonably realistic to me. Keep in mind: * The major Chinese cities generally have very developed and efficient systems of mass public transit, reducing demand for rideshares (and cars in general) * While China is a large country, not everyone can afford an automobile or a rideshare service. There are many reasons why scooters are so popular in SE Asia; this is one of them.

dilemma 10y ago
Startups are valued by potential so have Uber China's future value be capped at 1/5 of Didi is certainly a downer on its total value - this is the world's largest consumer market. The points you make about the Chinese market look completely off to me.
eva1984 10y ago
Apparently without Chinese numbers, it is hard for Uber to further blow up its growth story, according to itself, China has generated more rides than US daily.
seanmcdirmid 10y ago
Ride sharing is a huge deal here. I use it daily, my wife more so, most of the people I know use it. Car ownership is low, but that created even more opportunity here. And it's not like there was a healthy volume of taxi/black car activity before, the apps have just made it way convenient and much nicer. This will be the biggest market for uber like services, if it isn't already. But it is also way cheaper here, so that changes the dynamics a bit.
- shimon_e 10y ago
  Biggest volume and lowest prices.
mahyarm 10y ago
Didi was also losing a lot of money. It was a big cash bonfire race to have the biggest market.
rahimnathwani 10y ago
"The major Chinese cities generally have very developed and efficient systems of mass public transit, reducing demand for rideshares (and cars in general)" This depends on your frame of reference. If you're comparing with SF, sure. If you're comparing with London or New York, less so. In London, the underground is faster than private car for many (most?) daytime journeys. In Beijing and Shanghai, a private car is almost always faster. Subway stations are spaced too far apart, and the walking involved in changing lines is pretty long. Buses are slower than cars even at times when bus lanes are active. "While China is a large country, not everyone can afford an automobile or a rideshare service." The people who don't have cars are precisely the people who use rideshare services. Compared with the West, in China, ridesharing fares are lower, and the cost of owning+operating a car is higher. I ride Uber 10-15 times per week. The total cost of those rides is 20%-30% of what it would cost to lease and operate my own car, even if parking were free (which it's not).
- johnloeber 10y ago
  Regarding the second point: sorry, I wasn't being clear. I think that the pricing probably goes like this: owning/operating a car > using a rideshare > using a personal scooter > using a personal bicycle. You have to keep in mind that bicycles, scooters, and other small vehicles unsuitable for ridesharing are very popular in China. Since few people own and operate cars, rideshares don't have a large market to undercut.
  - rahimnathwani 10y ago
    My primary reason to get an electric scooter wasn't cost: it was availability. Hailing a taxi is often almost impossible, but a scooter is always ready when you are. But ridesharing means I almost never have to worry about availability, and now my scooter is gathering dust.
  - chj 10y ago
    In some cities ... > using a personal bicycle > public bicycle
- theseadroid 10y ago
discodave 10y ago
> Uber's China business was losing money before (I believe to the tune of about $1bn/year) > I would conjecture that China was never a large part of Uber's valuation These two statements are not exactly congruent. Investors in later funding rounds would have expected their investment to be used to grow the valuation. In other words, they were funding the losses in China so they should expect a return.... unless they were just investing in Uber due to FOMO.
- rtpg 10y ago
  Here's a narrative: "If we spend a billion in China now we'll make it!" (Year later) "Lots of competition but this time it's different!" (Something something China) "OK maybe this isn't working out. Let's salvage what we can"
lziest 10y ago
As a Chinese national, I disagree. Taxi experience in big cities in China is generally better because of heavier regulation and competition. In many medium to small cities, it is far worse. Now note Uber only compete in big cities while Didi has already been operating in many smaller cities with large market share. Yet Uber still fails to expand to where ride hailing by app should be popular and desirable. Scooters? Everyone hates them. Personal experience: my hometown is a medium city (with a population of ~3 million in urban area), the taxi system there is so broken. Because of the medallion system, to maximize the profit/cost ratio, taxi drivers usually operate their cars 24 hours a day with two shifts. Day shifts are usually taken by locals, and they will try their best not to serve you if the trip goes through traffic-jammed area or remote places. I understand their economic reasoning though. The worst part is every afternoon from 4pm to 6pm, when shift change happens, every taxi driver will refuse your ride request unless you happen to be ride sharing with them to their shift change stops(pretty ironic I think). So as a rider you basically beg for a ride. That's how Uber/Didi win. You don't beg, you don't worry, you don't get pissed off. You uses an app then you get on a car with better fare (thanks to those steep discounts) Remember, this is just one city with population of 3MM, there are more than 100 of such cities (with population of 1~3 million) in China. But Uber is not operating in my hometown, let alone many others. Uber is slow to adopt Alipay or Wechat pay. Uber is slow in expansion.
- hueving 10y ago
  > Taxi experience in big cities in China is generally better because of heavier regulation and competition. The taxi experience is the US is bad because of heavy regulation without competition. Competition is the only thing that helps.
- evanrich87 10y ago
  Slow to adopt WeChat is incorrect. WeChat blocked Uber from the app because Tenecent is one of Didi's largest investors: http://venturebeat.com/2015/08/24/ubers-wechat-drama-exposes-the-unique-challenges-of-winning-in-china/ http://venturebeat.com/2015/08/24/ubers-wechat-drama-exposes...
  - 10y ago
jgalt212 10y ago
> I would conjecture that China was never a large part of Uber's valuation. I would conjecture the opposite as Uber investors were pitched on the China growth story > Four out of the top 10 are now in China, according to an email sent by Uber CEO Travis Kalanick to investors and obtained by the Financial Times. > In the request for money from investors, Kalanick explained just how fast the company is growing: > Passengers in China are taking 1 million trips per day. Uber is in 11 cities in China, but plans to launch in 50 more cities that have a population of more than five million this year. These are all cities comparable to the size of Miami, Kalanick said in the email. > Four out of Uber's 10 largest cities are in China. > After nine months in Chengdu, the city is seeing 479 times the number of trips that New York did at the same mark. Hangzhou is 422 times larger than New York at the same nine-month mark and it is adding 200,000 residents a week. > The company is planning on investing more than $1 billion into UberChina, which goes by YouBu or "an excellent step forward", locally. > It is now the largest market outside of the U.S., and "at the current growth trajectory, will most likely surpass the US before year-end," Kalanick said int he email. http://www.businessinsider.com/uber-china-growth-2015-6 http://www.businessinsider.com/uber-china-growth-2015-6

azernik 10y ago

A general approximation in business is that the non-US market is 5-8x the US market. So if the world market is only 9x the China market, I'd consider that a very big deal.

eru 10y ago
Is that an approximation for US businesses?
- azernik 10y ago
  Yeah - used to (once you've worked out the size of the US market) get a vague feel for the international possibilities. Very rough first-order approximation.

fuzionmonkey 10y ago

It's not a $7 billion "exit". It's an investment for a 20% stake in Didi for $7 billion, which presumably will increase in value as Didi continues to expand in China, especially with less need for ridiculous spending on driver incentives since they will no longer be competing with Uber. Uber probably had something in the ballpark of 20% market share in China so it sounds like the two decided to simply make peace and become profitable together instead of duking it out for years on end and throwing away billions.

sk5t 10y ago
Suppose you spent $1B on a factory to make blenders + blender marketing + distribution channels, etc. Later, you invest $200MM in another blender concern for a 20% stake. How do you value / account for the first $1B in sunk costs?
- argonaut 10y ago
  You answered your own question? You don't - it's sunk costs.
- fgonzag 10y ago
  As a loss obviously, a sunk cost is exactly that: sunk
20andup 10y ago
Its not a 20% stake. "Uber Technologies will receive 5.89 percent of the combined company with preferred equity interest equal to 17.7 percent of the economic benefits."
deleted 10y ago
[deleted]

rahulgulati 10y ago

One of the factors for Rest of the world vs China gap could be the ticket size of a cab ride. A 5km Uber ride in India/China/SE-Asia costs $1.5 on an average, while in developed countries its $15 on an average (10X). So, I guess, it's value over volume for Uber and markets that are on fast-track to profitability. source - http://www.priceoftravel.com/6536/price-of-a-5-kilometer-uber-ride-around-the-world/ http://www.priceoftravel.com/6536/price-of-a-5-kilometer-ube...

yomly 10y ago
Spot on - ubers in China were easily 70% cheaper for me (coming from the UK). I don't think the volumes were appropriately bigger. Also seemed like Uber were going wild at the time - Easter weekend was totally free for all riders all weekend iirc.

robk 10y ago

I think this is exactly right. It's a decent face saving move for Uber to have some sort of outcome in an otherwise very very difficult market where they were losing. Seems like the investors in Uber China could have done better to just put the money directly into Didi though. I guess the upside was it got them into the parent company though, which otherwise they may not have had access to.

robk 10y ago

Didi was last valued at $28b according to press from June. http://www.forbes.com/sites/ywang/2016/06/17/didi-in-valuation-fantasy-land-with-new-7-bln-funding/#200b38b27e94 http://www.forbes.com/sites/ywang/2016/06/17/didi-in-valuati...

EGreg 10y ago

Apple win!

georgeecollins 10y ago

This is how you realize that the $68 billion value is suspect?

fullshark 10y ago

Looks like a good deal to me because continuing to fight Didi in China was a losing proposition. Also they now own 20% of the dominant chinese ride hailing company.

aetherson 10y ago

As always with Uber you have to understand the relative, not absolute, situation. Uber needs to not just be successful, it needs to be MASSIVELY successful. It's valued at north of $60B! If it makes a bunch of modest deals that are successful to the tune of making a 15% return on investment, and that investment is $2B, then it needs like 20 of those deals to justify its valuation, much less to grow. At risk of pointing out the obvious, there aren't 20 Chinas. And Uber doesn't have $40B to spend on a series of 20 $2B deals. Uber's entire existence for at least the last five years has been predicated on being a major global game-changer. Anything that is less than "major global game-changer" for them is a failure.