Aswath Damodaran on FiveThirtyEight:
For all these companies, the key selling point is “disruption,” one of the tech industry’s worst buzzwords. The companies argue that they’re upending existing ways of doing business — hailing a taxi, with Uber, or finding lodging, with Airbnb — and given the sizes of the businesses they’re supposedly disrupting, the sky’s the limit when it comes their value. But is Uber, which was founded five years ago, really worth $17 billion? My answer, as I hope to detail below, is only if we make some big assumptions about the taxi market and Uber’s place in it.
I know this has been a hotly debated topic for the past two(?) weeks, but this analysis is pretty hard to argue about. Investment in a company like Uber isn’t about current revenue, or even future expected revenue — it’s about future potential revenue. Hence the ridiculous use of “disruption” in investing.
I like Uber, but I think you are kidding yourself if you think it is worth $17 billion. But, that doesn’t mean it’s a bad investment at a $17 billion valuation.
Why? Easy: all you need to do is persuade someone else to come buy it for enough money that you get rich. And if Snapchat is any indication, that shouldn’t take long.