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.


Posted by Ben Brooks