Uber’s Valuation: Is It Really Worth $51 Billion?

Uber recently closed a monster round of financing.
The ride-sharing company raised $1 billion in a private transaction, which means that Uber’s valuation now stands at nearly $51 billion.
This transaction makes Uber the most valuable private company with venture capital financing. The company is just 5 years old, making it a truly remarkable Silicon Valley success.
Back in 2011, Facebook (NASDAQ: FB) also achieved a $50 billion valuation as a private company. At the time, the company had annual sales of $2 billion. Since then, Facebook’s sales have increased tenfold and its value has soared 422%.
So what’s attracting investors to Uber?  The simple answer is the massive growth.
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The Wall Street Journal reports that Uber’s revenues were $400 million last year. The company has told its investors that revenues will grow fivefold this year, and reach $2 billion.
Uber is focused on expanding its stronghold in the transportation sector. In New York City, the company offers UberRush as a courier service. Plus it’s testing a food delivery service called UberFresh and a carpooling service called UberPool.
On top of it all, Uber plans to embrace self-driving cars in the coming years. Once available, the company’s labor costs will drop and profits could soar.
Compare Uber to other companies, and the differences are remarkable. Most companies are struggling to grow their sales and earnings by 5% per year. And since earnings growth is a key contributor to stock performance, Uber’s hyper-growth makes it extremely attractive.
That’s why Microsoft (NASDAQ: MSFT) and an Indian media company called Bennett Coleman & Co. chose to invest $1 billion in Uber in late July.
Consider that Microsoft’s sales are expected to decline 2% this year. The company is seeking ways to invest its cash to generate a healthy return. By investing in a high-growth business such as Uber, Microsoft hopes to reward its shareholders.
In total, Uber has raised $5 billion from investors. The funding has come from premier Silicon Valley venture capital firms, including Benchmark, Lowercase Capital and Menlo Ventures.
Well-known angel investors, including Napster’s Shawn Fanning and Amazon (NASDAQ: AMZN) founder Jeff Bezos, also got in on the action. Public companies, including Google (NASDAQ: GOOGL) and Baidu (NASDAQ: BIDU), have similarly backed Uber.
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The best investors know that the time to invest is before a company goes public. Once shares are listed on the Nasdaq or NYSE, the big profits have already been made.
That’s why asset managers BlackRock (NYSE: BLK) and Goldman Sachs (NYSE: GS) – which manage billions for high net worth individuals – also bought shares of privately held Uber.
If you’re not investing in pre-IPO companies, you’re missing out. In this market, the big profits won’t come from buying an index like the S&P 500 or Dow Jones Industrial Average. Instead, you’ll need to get in on the ground floor with America’s best growth companies.
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