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Category Archives: Marketplaces

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Is Uber Really Worth $40 ($50?) Billion?

This is the second part of my last post. . .

 

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Uber’s stratospheric valuation has joined “the weather” as the conversation topic of last resort at awkward dinner and lunch meetings. Without any hard numbers or rigorous analysis, I’ve alternatively played the role of brainless cheerleader and green-eyed skeptic – neither of which has convinced people that I’m a thoughtful and intelligent human being. So today, I’m going to try something different: I’m going to crunch some numbers and reach an independent opinion about Uber’s $40B valuation.

Now among the world’s most iconic Internet companies, Uber is often compared to eBay circa 2000. As the original marketplace company, eBay has a similar business model, scale (billions in net revenue) and more importantly, network effect driven hyper growth. For this analysis, eBay will play foil to Uber.

Continue at CBInsights . . .

Reconstructing Uber’s Uber Financials

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Like many of people in the tech community, I’ve been following Uber with a mix of awe, horror, and admittedly, jealousy. How exactly is it doing? How is it worth $40B+? What brand of pomade does Travis Kalanick put in his hair? I took it upon myself this week to at least try to solve the first question (the rest will come in the coming weeks) using publicly available (both “leaked” and “released”) data to reconstruct Uber’s topline revenue.

What makes me uniquely qualified to do this?  Well, a long long ago, in a past life that I no longer publicly acknowledge; in case I lose my nerd cred, I was a junior investment banking analyst, working for this guy. . . plus I got an “A” in Intro to Algebra in high school.

This is what we know as “facts”:

  •  December 2013, the top 5 cities (NYC, SF, Chicago, DC, LA) generated ~$75M in GROSS revenue (Side Note: The speed in which LA ramped up from nothing in the beginning of the December to almost the size of NYC by end of the month is nothing short of amazing) (source: Business Insider)
  • From NYE 2012 to NYE 2013, its year over year revenue grew by 369% (source: Business Insider)
  • NYE 2013 revenue, top 5 cities represent 56% of revenue (source: Business insider)
  • From January 2014 to June 2014, its monthly revenue doubled (source: WSJ)
  • Uber itself was giving projections to potential investors at the latest $40B round a GROSS revenue of “$10B run-rate” by December 2015 (source: Henry Blodget)
  • Between January 2014 to Dec 2014 Uber’s monthly revenue tripled again (source: Henry Blodget)

From those numbers can triangulate/guestimate the following

  • Dec 2013 GROSS revenue is between $75M and $135M (probably closer to $75M) . . . so lets go with $100MM
  • Dec 2012 GROSS revenue is ~$27M
  • June 2014 GROSS revenue is ~$200M
  • December 2015 Gross revenue is ~$900M

Using linear extrapolation (because I’m lazy), here is what I came up with for Uber’s net revenue.

(Note to mutual fund and PE guys, marketplaces are valued based on NET revenue not GROSS revenue, eBay set the accounting standard all the way back in 1999. Groupon’s shenanigans on this topic caused it to re-price its IPO multiple times.)

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OK, that was a little hard to read, but data rich. Let’s try again.

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Much better. So what do we know?

  • All the numbers that were leaked at different times ended up being remarkably consistent, which means there were probably directionally correct
  • I’m guessing I’m +- 20% on my projections
  • 2013 Uber is the size of a single category in eBay . . . big f’ing deal; 2014 Uber is an interesting company; 2015 Uber is an absolute gorilla
  • Uber must be supremely confident and riding a lot on its 2015 numbers. When you are projecting 200% annual growth at this scale, missing a month early in the year, will make you miss the year by a long shot . . . since we are in March already, Uber probably knows whether its on track for the “$10B” gross run rate target already
  • I’m going to have to sleep on what other fun analysis I can do with these numbers . . . more to come!

 

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Catching Up on Bylines: Lies & Hacks

Making fun of myself and the bullshit I spew on a daily basis . . .

It’s almost been two years since I co-founded LA-based accelerator MuckerLab and since then, I’ve gotten pretty good at lying.

Not the “pants on fire” kinds of lies, but more like “Pretty Little Liars” ones. These are the types of lies that VCs and accelerators dole out to entrepreneurs because they are somewhat true, mostly innocuous, often keep people from crying, but are most definitely misinterpreted by entrepreneurs.

read more at Business Insider

A refresh of an old post from my now-defunct personal blog from 2008 (ya 2008!) . . . on how to build liquidity in marketplaces

Many investors love “disruptive” businesses. This is in part because these businesses are unencumbered by legacy constraints that had previously been hardwired into the companies and industries these startups are trying to disrupt. One such business model is the “online marketplace,” an entirely new business category not possible (at scale) before the Internet.

During the first dot com era, marketplaces were all the rage – with eBay leading the charge. By the end, 99 percent of the B2B marketplaces had cratered and only B2C eBay was left standing and thriving.

The prevailing consensus at the time was that B2B marketplaces were too hard (e.g. it’s really a software business, not liquidity driven) and that B2C marketplaces could not be built under the giant momentum of eBay’s “network effect.” Investment stopped, and entrepreneurs focused on other categories.

read more at The Next Web

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Marketplace Value Creation and Capture (PandoDaily)

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Creating a liquid and vibrant marketplace is already hard enough; fine tuning a business model, and eventually getting paid for the value that has been created by the marketplace is just as complicated and perilous. There has been a lot of talk on the “take rate” a marketplace business can eventually sustain and justify. In general, there is a direct and positive correlation between the strength of network effects achieved and the take rate that can be sustained, as well as a negative causation between initial take rate and subsequent network effects that can be realized. As a result, it is better to achieve network effects first before trying to optimize for maximum take rate/commission in a marketplace. (Note to VCs: don’t judge the revenue potential of a marketplace business based on its initial take rate.) In fact, at eBay it was common practice to launch a commission/fee free marketplace in a particular geography and wait for liquidity and network effects before imposing any type of fee structure on the business.  Continue at PandoDaily. . . .

 

 

 

 

 

 

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Panjo: We Gonna Bring Sexy (eBay) Back

 

sexy-back-_-panjoAt some point in the life cycle of any successful company, it will have to abandon what made it successful in the first place. In the search for growth, the original customer, the initial wedge entry point, the early adopter will, by definition, will have to be left behind for the larger and more mainstream market opportunity. Today’s eBay looks vastly different than the eBay of the early 2000′s.  Today’s eBay is dominated by discounted commodity goods or in-season products.  Auction is no longer the main focus of the company. There is not a lot of trading, mostly just selling and buying. The level playing field is long gone (where small/individual sellers were given the same fees and the same visibility as a top sellers). The hard core collectibles enthusiasts (without beanie babies, there would not have been an eBay) still use eBay only because the lack of alternative, but the community that defined it in the past has evaporated. In the early days, eBay was a giant forum/message board with a marketplace attached to it (eBay’s message boards used to get as much traffic as its marketplace). Today, when people talked about the convergence of commerce, community, and content, they forget that eBay was the original user generated superstar.

But that playbook can only take the company so far as it had begun to saturate its initial market back in 2005. It took eBay almost 5 years (2006 – 2011) to pivot into the NEW eBay, a merchandizing and payments juggernaut capable of taking on Amazon. It was a long, hard, and gut wrenching turn around – eBay have to give up its first love in order to play with the big boys.  It was the right decision combined with case study worthy execution. eBay is now growing and becoming relevant again  – John Donohoe is an amazing operator and strategist.  But to do so, eBay has left its billion dollar flank wide open for a new entrant to recreate the community and passion that had defined it in the first place.

Panjo had its public launch and funding announcement today. Spark Capital (of Twitter, Tumblr, and FourSquare fame) is leading the round because they believe in the vision and the the ultimate billion $ opportunity. In the vacuum that eBay has created, fragmented forums  have taken its place as a place for enthusiasts and hobbyist to both talk about and trade with each other their passions. But that trading experience is still fragmented and sub-optimal – almost web 1.0 ish for the lack of a better term. As a result, Panjo is actively partnering with forums in order to go to where these interest based communities already are and leverage existing network effects where it exists.  In almost 3 month since it started rolling out its solutions to partners, Panjo has achieved $500K in monthly GMV (marketplace speak for gross merchandize volume) – an almost unheard of ramp rate in the history of transactional marketplaces.

As a long time forum nerd (MBWorld, Watch U Seek, Bhuz), I’m excited to not have to spend days sending private messages back and forth, pulling up excel just to calculate paypal fees that sellers refuse to pay, emailing sellers to get an shipping tracking number, complaining to moderators when something goes bad . . .  just to buy my favorite W208 aftermarket parts. As an investor – I’m looking forward to seeing the flywheel gain more momentum, Chad & Co execute to perfection as he has always done, and beating up Chad along with  with Andrew Parker of Spark :) . . .