As many of you know, in some ways I’m a “wannabe” venture capitalist. I love the idea of trading earlier on, in a high risk, high reward environment. I was looking to buy Facebook long before it became public (ended up buying a few months after the IPO) and since then had been looking at other companies. Twitter remains a questionable one for me, even after its IPO. I do like companies such as Dropbox but it’ll be awfully difficult to compete in cloud-computing based services where Google (GOOG), Facebook (FB), Microsoft (MSFT) and Amazon (AMZN) are running massive operations with very little regard for margins. Where does that leave us?
The whole idea behind this new generation of companies is to make better use of existing resources through technology. Uber has quickly became one of my favorite plays and I’m extremely impressed that Google ended up buying a 20% stake. What is Uber? It is basically a “lead generation” company that connects drivers/taxis to users. They make the whole experience (from pick-up, service, payment, invoicing, etc) extremely easy for all parties involved. They take a 15-20% stake in those revenues and give the rest to drivers. It feels like a win-win-win. Uber has a great business on its hands if you think about it.
-Almost no capital required (they do not own cars, etc)
-They make life easier for all parties
-They’re able to fight the battles with taxi unions, etc
A few days ago, financials were leaked that indicated gross revenues over $1B this year making Uber’s take at over $200M. As Google boughts its stake at a $2.5B valuation, that certainly seems like a great pricing point. I would imagine that over time, Uber’s margins will be very high. It is expensive to enter new markets as getting their name out there requires promos, etc. But once a market is running well, I’d imagine the margins would be very high. 50%? It’s certainly possible. The staff required to run these operations is fairly small and the potential here is significant. Just this year, Uber announced it was offering to deliver Chrismast trees in some markets. A lot more services could be added over time.