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Ride-Hailing: Is Sharing the New Owning?

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Valuing Digital Business Designs and Platforms

Part of the book series: Future of Business and Finance ((FBF))

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Abstract

It is expected that the way people get around in metropolitan areas will change within the next decade more than any time since the breakthrough of the automobile. At the epicenter of this technology disruption in urban mobility stands the transition from owning a car to on-demand ride-hailing and food-delivery service platforms, which goes hand in hand with the rise of the sharing economy. Chapter 3, after having introduced the new “technological alphabet” of the automotive industry, discusses the 10C Business Design of the early ride-hailing innovator Uber. But, as Uber supplemented its double-sided ride-hailing platform Uber Mobility with its three-party food-delivery platform Uber Eats, also the latter will be analyzed. Based on the 10C Business Design understanding, the eight value levers of Uber’s ride-hailing and food-delivery platform will be discussed. On the one side, Uber is a typical asset-light platform matching the riders’ demand to bridge the distance between two urban locations with a driver who is registered on the platform willing to satisfy the rider’s demand with his own car. On the other side, such platforms are exposed to an intense platform competition with significant side payments for the capture of platform partners, to the risk of multi-homing, and to partially fragmented networks. The financial Reverse DCF valuation of Uber, as “the hottest question on Wall Street,” closes Chap. 3.

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Notes

  1. 1.

     Brokers are intermediaries facilitating freight transport services between the shippers and the carriers offering supplementary services like contract documentation, pricing, or insurance, but have no ownership of truck assets. Carriers own such truck assets and are responsible for the freight transport from pickup to drop-off.

  2. 2.

     In the UK, workers do not have the same privileges as employees, but they are better off than self-employed as being entitled to the national minimum wage and holiday pay.

  3. 3.

     Adjustments in the first quarter represent foremost the $600 million accrual made for the resolution of historical claims in the UK relating to Uber’s classification of drivers, which reduced on an unadjusted basis Uber’s consolidated revenue to $2.9 billion and its mobility revenue to $853 million. As this reclassification is a one-time item, the further assessment references to the adjusted values.

  4. 4.

     Q1 2021 revenues stood at $2.9bn including a $600 million accrual for costs Uber forecasts to bear in the years to come to settle historical wage claims in the UK related to a landmark court defeat over worker classification that will provide drivers in the UK with extra benefits. Adjusted revenues add back the accrual and came in therefore at $3.5 billion (Uber, 2021b).

  5. 5.

     The take rates is defined as a platform’s average revenue on each order, as in ride-hailing per ride or in food delivery per meal order.

  6. 6.

     In its Q4 2020 financial report, Uber changed its accounting policy with respect to the recognition of excess cumulative driver payments. As formerly those have been presented within the cost of revenues, they are now directly deducted from revenues. These changes in accounting policies will lower the revenue level retrospectively, but will not impact Uber’s historical loss or loss-per-share statements. Nevertheless, the diagnostics of side-payments will be less transparent in the future as directly deducted before representing net revenues.

  7. 7.

     Also Lyft, Uber’s key competitor in its US ride-hailing business, was exposed to Q4 2020 revenue declines by 44% if compared with prior year’s performance.

  8. 8.

     In Just Eat Takeaway.com’s (JET) all-share deal, Grubhub shareholders were offered 0.6710 Just Eat Takeaway.com ordinary shares in exchange for each Grubhub share. This represents an implied share value of $75.15 for each Grubhub share, a premium of around 60% compared with Grubhub’s share price before rumors of the transaction emerged on capital markets. This pricing gave Grubhub a transactional equity value of $7.3 billion.

  9. 9.

     Before the overallotment option, which gave Deliveroo’s underwriter consortium the option to sell stocks in the secondary market

  10. 10.

     Nevertheless, as for its micro-mobility business, Uber also strengthened its profit focus in food delivery by targeted divestments. The company sold its cash-draining Uber Eats Indian operation to Zomato Media Private Limited due to the hypercompetitive nature and in tradition engrained local Indian food-delivery market.

  11. 11.

     Whereas ROIC addresses the returns of already during the scaling period Invested Capital, RONIC describes the return and value contribution of newly, meaning during the continuing value period injected Invested Capital.

  12. 12.

     By deducting legal expenses (1% of revenue), stock-based compensations (3% of revenue), and depreciation (3% of revenue) as well as taking a 25% normalized tax rate into account for the steady state

  13. 13.

     Intangible assets and goodwill have been assessed to be driven by Uber’s acquisition lately and not by its core operating business. Therefore, such balance sheet positions have been considered not to impact the future growth in Uber’s Invested Capital.

  14. 14.

     In contradiction to the planning period, where due to significant losses carried forward Uber would be not obliged to pay taxes, for the steady state, a global tax rate of 25% was assumed.

  15. 15.

     World regions included for the estimate of Uber’s addressable market are North America, Latin America, Europe, India, Middle East and Africa, Australia and New Zealand, Japan, South Korea, and other Asian countries excl. China. For the recalibration of the valuation, the following markets have been taken as Uber’s addressed core markets: USA, Canada, Latin America, Europe, Middle East, and North Africa, plus selective Asian countries including India and South Korea, besides Australia and New Zealand. China was excluded due to probable no competition as part of Uber’s market exit and investment in the local champion Didi. The same holds true for Southeast Asia and Uber’s equity holding in Grab. Compare as well page 3 in Uber’s 2019 annual report (Uber, 2020a).

  16. 16.

     The number of new riders might also turn negative in case of MAPCs joining competing platforms or in case of unforeseeable black swan effects like the COVID-19 pandemic.

  17. 17.

     The modelling of the forecasts with respect to the churn rate data from a recent Goldman Sachs study and alternative studies has been taken into account (GoldmanSachs, 2019). Therefore, in a separate valuation simulation, an additional 2% CAGR of the ride-hailing share of urban mobility was assumed at the beginning of the scaling period and to peter out at a growth contribution of 1% in the prior to the steady-state year 2031.

  18. 18.

     The assumed 5% GDP growth in Uber Freight markets in 2021 mirrors a 6% GDP growth for the USA and a 4% GDP growth for the EU.

  19. 19.

     Platform costs are a significant cost driver of any platform company and are therefore in the center of interest of Uber’s cost management approach. For a robust midterm estimate of such costs, mature platform peers R&D costs have been benchmark to design a probable target rate.

  20. 20.

     The P&L position other income (net), which is in Uber’s case foremost driven by its income and expenses from its investment in its Chinese ride-hailing Didi and its other equity investments, was not explicitly modelled, as details for those peers’ Business Designs and outlooks were not available.

  21. 21.

     To get a more robust beta estimate for the still limited capital market history of Uber, the levered beta of the company was benchmarked with the unlevered beta of a tailored, more-broadly defined peer group and re-levered by applying Uber’s debt-to-equity ratio. This beta assessment will be detailed in the second edition, having more historical capital market data available for a more granular cost of capital assessment.

  22. 22.

     According to Uber’s Q1 2021 report, the company holds the following ownership positions: 14% in Didi (China’s ride-hailing champion), 16% in Grab (acquired as part of Uber’s Southeast Asian operations and market divestment to Grab in 2018), 26% in Aurora (acquired as part of its autonomous drive divestment to Aurora), 33% in Yandex Taxi, 8% in Zomato, 6% in Joby, and 31% in the electric scooter company Lime (Uber, 2021b).

  23. 23.

     As part of the divestment of Apparate USA LLC to Aurora Innovation Inc., Uber made also a $400 million cash investment in Aurora and entered into a collaborative agreement with Aurora pursuant to which the two partners will cooperate with respect to the launch and commercialization of autonomous drive technologies for Uber’s ride-hailing network.

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  1. Augsburg University of Applied Sciences, Augsburg, Germany

    Thorsten Feix

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  1. Thorsten Feix
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Feix, T. (2021). Ride-Hailing: Is Sharing the New Owning?. In: Valuing Digital Business Designs and Platforms. Future of Business and Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-83632-0_3

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