Uber – Time to print

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The time to make money has arrived. 

  • In the last few weeks Uber’s position in the transportation industry has crystallised meaningfully, meaning that the time for it to make money is here.
  • One large scale loss (China (see here)) is complimented by its dominance in almost the entirety of the developed world which is where the vast majority of the revenues are likely to be earned.
  • Data from Similar Web using Android installs as an indicator, finds that in North America, most of Europe and South America, Australasia and parts of Africa, Uber is the dominant ride hailing service.
  • In North America, Uber is installed on 21.3% of Android devices.
  • This may not be that impressive but what really matters is that it is 8x greater than its nearest rival Lyft which is on just 2.6% of Android devices.
  • Uber, just like all the digital ecosystems, is a network based business where the economics are governed by one’s size relative one’s competitors.
  • The rule of thumb that I use is that to hit critical mass a network based business has to have at least 60% share of the market in which it operates or be at least twice the size of its nearest competitor.
  • This data is showing that in most of the markets in which it operates, Uber is already there which explains why Lyft is trying to sell itself and why Uber is able to treat it with some disdain.
  • China was a big loss (see here) but now that Uber has given up trying to compete in China, the focus should now turn to justifying the $62.5bn valuation that its most recent investors have paid.
  • Out of the 171 markets that Similar Web looked at, Uber dominates 108 of them and with almost all the valuable territories now covered, the customer acquisition phase now appears complete.
  • Furthermore, Uber is now the go to place to get a taxi or to offer one’s services as a driver, meaning that the vast sums of money that have spent to get there have not been wasted.
  • For all network based businesses this is the Holy Grail because once this position has been achieved, it is possible to earn vast sums of money and it is very difficult to be disrupted.
  • The persistence of Craigslist in the US is a great example as it has proven impossible to displace even though it offers a very poor user experience.
  • Hence, I am now looking for the focus at Uber to turn to making serious money, meaning that an IPO is probably not that far off (1-2 years).
  • Consequently, I will take a dim view of further raises as with proper execution, Uber should now become a hugely cash generative enterprise meaning that further growth should be easily internally financed.
  • The big question now is: is partial world domination enough for management?
  • From the investor’s perspective, I hope that it is.