Is Uber really worth $40 Billion? What is value?

Today it was discovered that Uber raised about $1.2 Billion in its latest round of VC funding. This puts Uber at the stratospheric valuation of $40 billion. This valuation makes Uber worth more than companies like Haliburton, CBS, Yum! Brand (Pepsi, Pizza Hut, Taco Bell, KFC), Northrup Grumman Corp, Kraft Foods, and basically 72% of the Fortune 500, according to this Fortune article, that means there are only 140 companies in the world valued more than Uber. On the other hand, its revenue is only $400 million which is one fifth the revenue of the smallest company on the Fortune 500.

Clearly this means that investors expect a massive IPO and that the company will continue to double revenue every 6 months. This is one of the major reasons for this round of funding as well – Uber needs to be able to expand in Asia and this money will allow them to do so. They’ll have to hire staff, fight law suits, bribe people, and who knows what else. It begs the question, are we going to see Uber Rickshaws?

With this astronomical valuation of the company, it makes you ask what is value, who is receiving this value, and how long can this valuation truly be valid? There are only two stakeholders that are truly receiving $40 billion in value, that’s the startup founders and the early investors. With the bad press that┬áthe company has been receiving, it’s clear that it’s not Uber’s customers, whom expect privacy and discretion on the part of Uber, whenever they are not receiving it. Ok, maybe that’s not completely fair, as a large number of people use Uber today, it’s clearly filling a void that aging regulations wasn’t really filling. However, it’s clear that this benefit is coming at great cost to the “employees” of Uber where aribitrary rate cuts in some areas prevents it from being possible to make a true living wage. Furthermore, this valuation will only last as long as Uber is able to continually grow, as soon as the company fails to show that they are continuing to grow, their stock prices (as they will be public by then) will eventually fall back to much more realistic prices. This is similar to what initially happened with Facebook and more recently with prices falling for Twitter. The major difference being that Uber has a much clearer revenue model than either of those companies that does not rely on ads, simply drivers and riders. Furthermore, we only know what the revenue for Uber is, we do not know what the profit margins on that revenue are, clearly they are looking good, because for a given city the overhead for Uber can’t be more than half a million dollars, which means they are likely doing rather well.

Compare this to companies that actually make things that drive the economy through providing many jobs, like Kraft, it makes you wonder where these valuations come from and what it is that investors truly see in companies like Uber. To me, it’s an interesting company that has an aggressive approach to business, but that isn’t worth that kind of money. Maybe I’ll see things differently if it comes to Portland.

Economics, Philosophy and Science

The Occupy Wall Street movement has spawned a great deal of branch protests. It has increased our awareness of economic, educational and governance issues. We have seen a series of aggressive police actions and amazing responses from victims. Historically, universities have been a sites of unrest. Berkeley had it’s riots in the 60’s, there’s the famous Kent State shooting picture and there are many other examples. What do much of these have in common? The state has used it’s authority and power to overly aggressively clamp down on protesters. However, violent protesters can’t be accepted, but non-violent protesters cannot be met with force. It’s part of our heritage to protest the government.

However, it’s important to understand what we’re protesting and why. It was clear from the beginning of the OWS movement that most of the people didn’t really understand what they were protesting. Very broad general things like Wall Street making too much money or the fact that no one has gone to jail. I think it’s important that for protesting to be effective the leaders and a majority of the protesters need to be well educated on what it is exactly they are protesting.

In this case the protesters needed to be educated on economics and philosophy/morality. Why economics, those guys are like the bad guys man? Well, sadly, to have an actual conversation with these people you need to speak their language. You don’t have to actually accept their assumptions as true or accurate, but you need to be well educated on the topics. Additionally, if you are well educated on economics, you’ll know there are different capitalist perspectives on economics that indicate that a more equal society is a safer and happier society. Using evolutionary economics, policies can be crafted to help protect economies from crashes. In addition, being educated in slightly beyond the basic supply demand curve, it will help prevent the wool from being pulled over our eyes. This will also allow more members of our society to enter public discourse and understand and speak intelligently about the topics that impact all of us. People will actually understand what socialism and communism actually mean.

In addition to a good economic ground work, we also need to understand some basic philosophy. People are accused of moral relativism, we need to know what it actually means (morality is flexible based on the situation) and how that impacts people’s actions. We also need to know when our leaders are behaving morally, immorally and what sort of freedoms we should be giving to people. Our country is founded on the philosophical ideas of the enlightenment. The US government was founded on rights, which all people should have regardless of sex, race or whatever. This includes speech and protest. If these are within our rights, then we need to protect them from people that believe it is their right to physically assault you when you exercise your rights. Morality and ethics can also drive our legislature to define laws based on humanist principles to ensure living wages and the right to live for all people. Or at least the need to create the social mobility claim to have in our society. Decreasing costs of education reduces the initial burden after school which allows people to take more risks, which may allow them to move from one social strata to the next. These should be done for moral reasons and because education and research has been shown both neoclassical economics and evolutionary economics to be a huge driver of sustained economic growth.

We also need a strong scientific foundation, which will provide a healthy dose of skepticism for government and data published by any group on either side. It gives the tools to decide if we should accept these data or open our tool box and figure out where the flaw in the data is. Science is the driver of current economic growth. It is what allows the next big break through at the platform level. We’ve had several platforms, coal, steel, rail, and we’re currently on the silicon platform/computing platform. To develop new platforms we need to continue to drive to the frontier of science.

Our founding fathers embodied these ideals. Jefferson was a philosopher that wrote his own version of the bible. He and Franklin were both accomplished scientists. All of them believed in the rights of the people that exist not because they are given to them by the government, but because they are natural rights all people have. It is important that we acknowledge these rights and make sure we are educated in these topics to ensure an actual debate over the problems we’re facing as a society. Without being educated in the importance of these topics we’ll begin to argue based on the best sound byte and not on the content of the message.

In closing, all people need to become literate in these topics to provide the best foundation for an argument. Without being able to speak the right language, you’ll sound like whining children that’s wondering like a child lost in the woods, or out of your element if you will. With these tools, anyone can talk coherently and powerfully against the very things our own government protests in other countries.