If you are active on twitter or read mashable/techcrunch etc regularly then you must have heard about the hot new start-up in town(San Francisco). A start-up that has raised over $1 million in angel funding and whose flagship(and only) app has been downloaded more than 50,000 times.
Start up’s name: Yo
What does it do: Yo
Is that it: Yo
Are people nuts: Ummmm, that’s kind of hard to say.
‘Yo’ is an app created by Or Arbel, which allows the user to send ‘Yo’ to any of her contact, while the critics are arguing that it’s a useless app and are going as far ahead as to say that it’s the milestone event which signifies that we are in yet another tech bubble, Arble and his investors argue that Yo is a contextual messaging app. Where every Yo can potentially have a different meaning basis the context. e.g. A CEO can now ‘Yo’ her assistant instead of using a bell or a phone, you can just send a ‘Yo’ to your love interest to show that you miss her or send a ‘Yo’ to your close buddy to celebrate when Virat Kohli hits the next six.
Not only this, according to Arbel who created this app in 8 hours flat, Yo will change the way notifications work in our world.
Imagaine this, everytime you get a new comment on your post in rodinhood you just get a ‘Yo’ and you can check out the site to see it, or whenever your favorite e-commerce venture has a sale you get a ‘Yo’, or whenever there is a goal scored in the on-going Football world cup you get a ‘Yo’. If it seems farfetched, get this the last one is already working, once you add WORLDCUP on Yo you will get a ‘yo’ everytime a goal is scored.
How is it any different from whatsapp or other IMs? Arbel says that you need 11 taps to send a ‘Yo’ on whatsapp while just 2 to send the same on Yo.
Think it’s genius or think it’s stupid, either ways you are not alone. Check the following links out, and let us know what you think of Yo in comments.
https://mashable.com/2014/06/18/yo-app/
https://www.cnet.com/news/the-million-dollar-app-that-exists-to-say-yo/
https://www.vox.com/2014/6/18/5820948/9-questions-about-yo-you-were-embarrassed-to-ask
https://thinkprogress.org/economy/2014/06/18/3450334/yo-app-tech-bubble/
https://bostinno.streetwise.co/2014/06/19/yo-mobile-app-what-is-yo/
And the must see article by techcrunch: https://techcrunch.com/2014/06/19/meh/
Rishi
“Yo!”
That is what I wanted to write, go figure.
Yo is simple, but so is the missed call phenomenon, or was the early fb poke. I think it will eventually die (no, I’m not being a hater. I’m just saying what I think. I’m okay being wrong)…unless, they go beyond a Yo without breaking the promise of providing simple communication! The thing about missed calls and pokes is it can be followed up by an action using the same platform. In Yo, all you can do is send another Yo!
The other risk is technology – using push notifications as a core technology might not work. It’s not reliable. Apple doesn’t guarantee delivery of push notifications at all times.
Having said that, there is a significant upside to what’s happened – the developer has all the initial attention, downloads etc. required + not to forget Funding! There’s so much he can do now. Needs to be seen whether he can pull it off.
Ranjeet Pratap Singh
@Rishi: I think it’s now time to write the part two of your last blogpost 😀
Rishi
yea, the challenge is I need some data before I can do that…and more importantly time to collect data and analyze…getting private market data is tough! hopefully will do it in few days
btw, this just happened – https://www.nextbigwhat.com/indian-yo-app-oye-297/
Ranjeet Pratap Singh
@Rishi: Me and a friend were discussing about developing an Indian Yo yesterday, I wanted him to ‘invest’ 10K for me to get it done, he wanted to invest no more than 5K, so I dropped the idea 😀
On a serious note, looking forward to reading your next part of the blog series and btw Ashwath Damodaran of NYU has written an excellent opinion piece on bubbles and timing the market a few days do read that if you haven’t read it already.
Rishi
I think I read that. Also saw his latest post on Uber’s valuation.
While I see his perspective and I don’t completely disagree with his methods, he wasn’t in the room where funding discussions were being made and deal was signed. That’s the problem with private company valuations – no body but the founders and investors know the whole story. However, if I were the founder trying to raise such huge amounts of money, I’d probably tell a story that goes something like:
1. Successful, growing (revenue doubling every 6 months), HOT startup
2. Disruptive, proven model + extensible to other things (however, per an interview of the founder, he hasn’t sold on any other stuff like logistics etc. to raise money)
2. Going global, going big – need money to scale
3. Google last made an investment of $256 M at a valuation of $3.5 B, so an offer has to be better than that
4. Need money for ~2 years, and then we could probably think of an IPO
5. Prior investors doubling down
6. Get in NOW or GTFO!
I made an attempt on what Travis’ numbers/story *might* have looked like, based on bits and pieces of info gathered over time. The numbers in yellow are leaked numbers or actuals published in press.
Now if I tell you we are on track to $1B in revenues in 2 years, would you (as an investor) invest at the terms Uber raised money? I will leave it for you to answer now if there’s a bubble or not. 🙂
Ranjeet Pratap Singh
I think it’s very difficult to gauge the valuation of uber(even more so in the case of whatsapp). Revenue doubling six months at a lower base is much easier when u are you expanding in new areas(geographically or vertically). But sustaining this sort of growth will be nigh impossible two years down the line unless Uber expands into new verticals. Already uber is facing huge challenges in terms of making any profits or having significant growth in the cities it reached two or more years back. And even with a $1B revenue, they would need a revenue multiple over 25 to justify their present valuation.
Though we should also consider that Uber never positioned itself as a transport provider, they have always said they are a software company and allegedly they are already working on providing same day delivery, driverless cars, space travel and what not, now if they can actually enter into any of these(or many other) businesses and make even half of the impact it would be a very different story.
Rishi
On your point 1,
a) if you look at my numbers I purposefully didn’t double every six months. They know they can’t do that in new markets and therefore must have come up with lower growth numbers based on their history.
b) if you (as an investor) tell me you’re not giving a multiple better than comparables (e.g., Twitter), I have my own counter arguments. (btw, twitter is not doing that well and still enjoys a good multiple)
On point 2, yes but that’s not the business case (per founder) they raised funds on. That might be their argument for IPO or next round of funding. 🙂
I’m not saying it’s right or wrong! All I’m saying is it *could* be…
Ranjeet Pratap Singh
If that’s not the business case they made then it’s valuation is particularly harder to digest. Among the publicly traded companies, twitter still has one of the highest EV/Revenue.
Also consider the fact that in taxi/transportation industry EV/Revenue or EV/EBIT ratios are much much lower than those for internet based companies. Unlike most internet based companies Uber doesn’t have the safety net of network effect(apart from the peer pressure or ‘cool factor’. So, a company in Bangalore can’t be a better twitter for Bangaloreans but it certainly can be a better uber in Bangalore.
One more thing to note would be that Taxi/limo(here onwards just taxi) market is estimated to be around $100 Billion world-over, so even if Uber captures 10% of it and maintains it’s receipt rate of 15% (currently 0-15%) it will just have around $1.5 Billion in revenues. Even if we see 10 years down the line and consider the taxi market to be growing at 6%(present estimated rate) and that Uber will increase it’s share to 20%, it will have less than $4 billion in revenues and very little growth. For a mature company a EV/Revenue ratio of 5 is considered pretty good so Uber should be trading at around $20 B 10 years down the line unless it does have a different business case.
Rishi
On #1 I don’t know – may be Google’s interest in self driving cars? That would change the whole equation. I’m sure every one had other things back of their minds but I’m just quoting what the founder said.
On #2. Which public companies did you look at? If you’re talking Avis, Hertz etc. they are not even comparable. Like you said Uber is more of a software company.
On #3. a) First $100B market size is an assumption. If UK, Japan, US, India alone account for $60B, it’s got to be more than $100B worldwide.
b) Given the traction they have, Uber and investors are not betting to capture 10-20%, they are hungry for more. They want to be market leaders if not the only one. Agreed for a mature company the ratio is around 5-7. Let’s say trading at a multiple of 7 in 2020. Let’s say they capture 20% of a $140 B (100B growing at 6%) market in 2020. That’s $28B*0.2 ~$5.6B in rev. at a market cap of $40B.
Ranjeet Pratap Singh
1.> By founder I assume u mean Travis, and Travis has publicly and many times over(including on his twitter account) stated that Driverless cars is the future, in his words: “The reason Uber could be expensive is because you’re not just paying for the car — you’re paying for the other dude in the car,”
2.> Even though Uber has successfully positioned itself in the eyes of the courts that it is a software company, it really isn’t at-least not like other software/internet companies. Let’s keep in mind that hiring a taxi even through an App is a transactional business, and while I understand that a lot of people don’t like switching for psychological reasons, Uber would have no significant scale or network advantage over other players, which is what differentiates an internet based company from other businesses.
Network advantage is primarily the reason why in different Internet based businesses the top 2-3 players often have more 80% of the market share while the same would be less than 30-50% in other businesses(at-least part of this 30-50% market share is owing to their scale advantages)
3.> Uk, Japan, US, India and China(where it would be very difficult for Uber to operate) hold about 45% of world’s GDP(PPP), so the taxi market world-wide(barring China) should be somewhere close to $100-$120B. Of-course if you agree with Travis that they are competing with all modes of travel including trains, bus and personal cars it’s a different proposition.
4.> Historically for S&P500, EV multiple is in the range of 1%-2.5%, Google’s revenue multiple is ~5, Oracle ~4, Apple ~3, Microsoft ~ , Amazon ~2, Electronic Arts ~1.8.
Of-course I understand these are all much older companies which have already went public. But my point here is that in taxi/limo market having a 20% market share would perhaps be near saturation for the business, and at that point in time it would most probably be a publicly traded company(unless acquired).
I am not really a finance oriented person, but I believe that there could be only two reasons why investors would value Uber at $18Billion+
1.> They have limited their downside, all said and done, the total investment is uber in all rounds combined is < $2 Billion and most if not all would be convertible shares, so even if the company is worth a lot less than $18 Billion there is little chance of they losing money.
2.> They are not betting on Uber the taxi service, they are betting on Uber the connector and Travis himself. They know that both Google and Amazon are heavily interested in Uber, and more probably than not Travis is going to collaborate with either one or both of them to try and disrupt more markets just like they have done for this one.
Rishi
#1. Building a 2SM is very tough and breaking it is even tougher. That’s their advantage.
#2. Yes, the multiples for companies you mentioned are lower but again they are much older. I gave them a 7 on a horizon on 10 years from their founding date; and that’s fair IMO. btw, GOOG is 6 today.
#3. Let’s say, the investors were wrong and it’s “truly” worth only $4-5B today (like the blog said), by the time it IPOs it would be much higher and the downside to investors is almost nil.
The point is it’s all about what data someone has and what assumptions they make. The reasons the blogpost mention sound more like someone from academia would cite (conservative), where as the if you think like a founder or an investor, you can make a different case. That is why, like I said, it’s much tougher to judge private market valuations without actual data. Till then it’s all speculation and guesswork. 🙂
Ranjeet Pratap Singh
Absolutely agreed with your last two lines 🙂
Alok Rodinhood Kejriwal
Yo Bubble
Don’t Burst Yo,
Yo dude,
I’m not done Yo,
Yo Yo,
The VC Yo,
Is my real Yo,
And until his Money Yo,
Don’t hit my Yo Bo,
Don’t Burst Yo
Yo, just hang in,
Yo Yo,
Yo, you are the best Bubble Yo…
Rishi
AND…aiYO! (literally)
https://yourstory.com/2014/06/aiyo-app-yo-wow-labz/