Download now: How To Invest in the Coming Bitcoin Boom

Waiting on the Uber IPO

Public, Private, or Google's Next Purchase?

Written by Jason Stutman
Posted September 25, 2014

Unless you've been hiding under a rock for the past few years, you've no doubt heard of Uber, the popular ride-sharing mobile app that conveniently connects passengers with its wide network of independent, amateur drivers.

From the pockets of VC investors in Silicon Valley to the taxi-filled streets of New York City, the word "Uber" is quickly becoming synonymous with private transport — much in the way "iPhone" is now tied to mobile phones and "Google" is commonly used as a verb for Internet search.

Conversations like this are becoming more common by the day:

“Hey Chris, we're meeting up at McSorley's for a couple of drinks after work. We can swing by your place around 5:30 if you need a ride.”

“No that's alright. I'm working an extra hour tonight. I'll just get an Uber and meet you there.”

The speed at which Uber has reached its current level of brand recognition and success is nothing short of impressive. The company hit the streets of San Francisco in 2012 and has already stripped local taxi companies of 65% of their business, according to some sources.

After just a few short years on the street, Uber has even sparked an array of protests from cab companies across the globe.

In Boston, 300 taxis circled the local Uber headquarters in a “rolling rally.”

bostonprotest

In London, over a thousand black-cab drivers backed up traffic for miles.

blackcabprotest

And in France, a group of cab drivers attacked an Uber vehicle, smashing its windows, slashing its tires, and injuring passengers out of sheer hatred for the company.

ubertireslash

The taxi industry's feathers are clearly rustled, but no amount of protesting is going to stop Uber's progress at this point. The whole situation is akin to Luddites smashing industrial equipment in the early 1800s.

When entrenched industries are uprooted, discontent will surface, but this discontent only serves as validation that a technology is truly disruptive.

The Future of Uber

In August 2013, Uber closed an impressive $361.2 million in venture financing, including a $258 million investment from Google Ventures. This was just the beginning, though, because by June 2014, Uber had received a striking valuation of $18.2 billion.

The question at this point in the game, of course, is what happens next for Uber? Does the company go forward with an IPO, does it stay private, or does another player in tech acquire the company?

In regards to going public, Uber CEO Travis Kalanick had the following to say when speaking with Bloomberg in Hong Kong back in June:

“Until it becomes a strategic imperative for us to go public, we're just not.”

Of course, Kalanick's words should only be taken at face value — Twitter's (NYSE: TWTR) management held a very similar public position back in 2012, and we all know how that turned out — but it still leaves open the small possibility of a future acquisition.

When it comes to a potential buyout, most people would assume that Uber's current valuation is simply too high for any company to even consider. An $18 billion price tag is enough to deter essentially any potential buyer out there... except maybe one.

Internet giant Google Inc. (NASDAQ: GOOG) has made its fair share of investments through M&A over the last decade — 168, to be exact.

Most of these moves have been pretty low key, but a select few have gained massive media attention, often due to the sheer amount of money dropped by what is currently the market's single-largest company.

Some of these notable acquisitions by Google include:

  • $3 billion for online advertising company DoubleClick
  • $12 billion for Motorola
  • $3.2 billion for Nest Labs
  • $966 million for Waze
  • $1 billion for YouTube
  • $800 million for artificial intelligence company DeepMind Technologies.

At face value, Google's serial spending spree may come off as a bit reckless, but when put into perspective, these seemingly massive investments are each just a drop in the proverbial bucket. After all, Google is currently holding $58 billion in cash and is packing on an addition $13 billion in income every year.

Though it doesn't qualify as a merger or acquisition, Google's $258 million investment in Uber was its biggest-ever venture capital investment, and there's probably a good a reason for that.

Google has yet to mention anything about this publicly, but it's very likely the company foresees its driverless vehicles and Uber working in tandem at some point in the future. Just imagine opening an app on your phone, ordering a ride, and having an autonomous car show up at your doorstep.

Together, Google and Uber could take over the vast majority of the taxi and limo industry, which rakes in an annual $11 billion in domestic revenue alone. Add in an estimated $14 billion from the UK and $25 billion from Japan (the largest global taxi market), and you're already at $40 billion.

Expand the figure globally, and you get up to $100 billion on the top line.

For perspective, worldwide ad revenue in 2013 was $117 billion. Google raked in 33% of that for a total of $38.6 billion. Margins would be lower in private transport, but the revenue stream would be about the same.

It's certainly feasible that Google would want to go after this market.

Until next time,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.

Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.

Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.

Comments

Buffett's Envy: 50% Annual Returns, Guaranteed