Ride-sharing firm Uber’s valuation soars to $18.2 billion
Ride-sharing company Uber said it has raised $1.2 billion in its latest round of funding, driving the company’s value to $18.2 billion — among the highest ever for a venture-backed start-up.
The San Francisco company said on its website that it expects to raise an additional $200 million once it closes a pending deal with a second group of strategic investors. It did not name the investors.
The funding catapults the firm into the ranks of the hot, high-tech companies that have attracted Wall Street speculation and money. Facebook Inc. is believed to be the only start-up that gained a higher valuation — as much as $50 billion — in funding rounds before it went public in 2012.
Earlier this year, cloud-storage provider Dropbox Inc. and property rental service Airbnb Inc. each were valued at a reported $10 billion after raising $250 million and $475 million, respectively, in private fundings.
Since its launch in San Francisco four years ago, Uber Technologies Inc. has expanded its service to 128 cities in 37 countries amid protests from taxicab drivers and companies about the safety of the largely unregulated businesses.
Through Uber’s smartphone app, the company connects customers with drivers who are available to give them a ride, often at lower rates than cabbies charge. Uber takes up to 20% of every fare.
What investors like about Uber, analysts said, is not only its ride-sharing platform but its potential to take that business model into the package courier and the heavy transportation industries, in which drivers would pick up and deliver packages in a city or move heavy freight over longer distances.
Uber began toying with the idea in April by launching UberRush, an experimental bicycle courier service in Manhattan. Steve Hilton, managing director of consulting firm MachNation, thinks that Uber one day could compete against shipping companies.
“Why not be able to, in real time, schedule the delivery of goods from point A to point B, instead of having to contact a shipping company who will decide when a truck is available,” Hilton said. “It could transform the way everything is shipped terrestrially.”
Jefferson Wang, a senior partner at IBB Consulting, likes the idea that Uber and other ride-sharing services can help consumers who move into cities and don’t want to own cars.
“The cost to park a car, the security to keep your car safe, the push to go more green and the ability to get a ride on demand, all those things combined may start to affect consumers’ decisions to purchase a new or used car,” Wang said.
Uber’s latest round of funding dwarfs the $250 million that its main ride-sharing rival, Lyft Inc., raised this year. The two companies have been using their investment money, in part, to poach customers and drivers from each other by lowering fares and giving drivers perks and bonuses.
“There are people who clearly value a third-party transportation service, especially when they’re drinking. Uber is a novel concept that actually proved out in its execution,” said Michael Pachter, managing director of Equity Research.
Unlike courier companies, Uber doesn’t have to pay for the maintenance of its vehicles or pay its drivers an hourly wage. Drivers provide and maintain their own vehicles, and they are paid only after giving a ride.
“Their only fixed cost is their technology and just keeping it running,” Pachter said. “They should be really profitable.”
The biggest challenge for Uber is whether the company will be able to continue adding drivers to its platform and stave off its competition, analysts said.
“The biggest threat to them is if somebody comes up and does it better,” Pachter said. “But if Uber keeps doing great, people aren’t going to uninstall the app and start using someone else.”
Uber and other ride-sharing services also face scrutiny from local and state bodies. In Austin, Texas, for instance, Uber and Lyft are providing ride-sharing services even though a city ordinance bans such operations.
The Taxi, Limousine & Paratransit Assn., a trade group for conventional taxi companies, has been pushing states and municipalities for laws that would regulate ride-sharing services as much as its members are.
The group also has started waging what it calls a public safety campaign to educate people about the potential dangers of ride-sharing, including possible limited liability insurance and less extensive background checks on drivers.
Uber has disputed the group’s accusations.
In California, state regulators last summer allowed ride-sharing companies to continue operating as long as they complied with basic safety rules.