What will Uber be worth 10 years from now?

Uber published it’s long awaited S-1 last week. To go from a concept, in 2009, to a platform that supported over 5.2 billion trips for 91 million consumers in 57 countries, in 2018 is pretty impressive to say the least. And while the growth rates for revenue/users etc are slowing down from past years, they are still remarkable for a business the size of Uber.

There will be a lot of conversations about the value of Uber. If you are interested in an in-depth valuation, please check out Prof. Damodaran’s latest Uber valuation. For a more concise take on Uber’s valuation, check out Fred Wilson’s thoughts.

Given that Uber will be going public soon, retail investors will finally get an opportunity to invest in the company. As such my interest is trying to figure out what Uber might be worth 10 years from now.

I am assuming that the growth rates will continue to slow down, but will probably taper off around 20% a year until the end of 2028. Uber is looking at expanding into new countries, as well as adding new offerings, so I am comfortable with these growth rates.

Beyond the growth rates, I am assuming Uber will be able to reduce costs in all of the categories, as a percentage of revenues. I have assumed Depreciation & Amortization to be 3.5% of revenues. I am assuming Uber will be able to find efficiencies to continually bring down costs, as a percentage of revenues. Operations & Support costs were 13.45% of revenues in 2018, down from 17.07% in 2017 and 22.9% in 2016. That is a decline of 25.5% from 2016 to 2017 and 21.19% from 2017 to 2018. These declines, across all cost categories, have to slow down so I am assuming a decline rate of 2.5% for the Operations & Support category for 2019 and beyond. My assumption for the decline rates, relative to previous years, for all cost categories are provided below.

Beyond these costs, I am assuming R&D costs will go up by 10% on an annual basis.

Using these assumptions I end up with the following cash flows (all numbers in millions):

Using an EV to EBIT ratio of 100 would put the EV of the core Uber platform at $516.5 billion.

Uber has other assets that will provide additional value. Uber’s stakes in Yandex.Taxi, Didi, Grab are worth $12.5 Billion today. Assuming an annualized return of 25% on these assets, over the next decade, these investments will be worth $115 Billion in 2028. Adding this to the $515 Billion valuation for the core Uber platform gives Uber a value of $630 Billion. Assuming Uber goes public at a valuation of 90 to 100 Billion, investors could be looking at a 6.3 to 7x return on their investment in 10 years.

The returns could be much higher, if the revenue growth rate is higher and if the operational costs can be lowered more rapidly. The returns could also be lower. Uber still faces regulatory challenges in certain regions. Any changes to the financial environment (cost of capital increasing, access to capital becoming harder etc) could also pose challenges for Uber. However Uber’s management team has demonstrated an ability to identify pain points for consumers and launch services to address those. At the very least, I would imagine Uber will beat public market returns in the next decade.