Is Uber A Tech Company, A Service Company Or A Something Else?

Synopsis

Uber lost $2.8 billion terminal twelvemonth, excluding its China concern, and $708 million in the first quarter.

By Nir Kaissar

Uber is a technology company. It is also a transportation company. That may seem similar a petty distinction, only a lot is riding on information technology. And not but for Uber, merely for every disrupter that fancies itself a technology visitor.

Europe's highest court -- the European Court of Justice -- will decide later this year whether Uber is more transportation than technology and should be regulated accordingly. Such a ruling would mean stricter rules, licensing requirements and higher compliance and regulatory costs.

Needless to say, Uber couldn't afford those regulatory burdens. It lost $two.viii billion concluding year, excluding its China business organisation, and $708 million in the outset quarter. But regulations would exist the to the lowest degree of Uber'due south concerns. The bigger problem is that Uber is worth far less as a transportation company than as a technology visitor.

The technology sector is famous for its improvident valuations, and Uber is no exception. Like many technology companies, Uber has no earnings, so forget about a cost-to-earnings ratio. It also has few assets other than its hard-to-value software, and so forget about a toll-to-volume ratio.

Based on one valuation measure that can exist calculated, however -- its cost-to-sales ratio -- Uber is richly priced. Uber's valuation of $69 billion and cyberspace revenue of $6.five billion last yr gives it a P/S ratio of ten.six, compared with iv.2 for the Southward&P 500 Information Applied science Index. Which is proverb something considering the tech sector'south P/Due south ratio is by far the highest amidst S&P 500 sectors.

Uber would be nowhere about every bit expensive if information technology were valued similar a transportation company. The P/S ratio of the Due south&P 500 Transportation Index is a lowly 1.5. To put that in perspective, Uber's value would have to tumble 86 percent to marshal with the boilerplate transportation company.

It'southward no wonder that Uber is badly fighting to keep its technology tag.

Uber is hardly alone. It seems as if every would-exist travel or retail or food or financial disrupter is calling itself a engineering science company. Information technology's probable not a coincidence that tech stocks look frothy. As my Gadfly colleague Shira Ovide pointed out on Thursday, in that location'due south a raging debate about whether tech valuations are budgeted worrying levels non seen since the 1990s-era dot-com chimera. In every conceivable valuation category, the tech sector is the beginning, second or 3rd virtually expensive among S&P 500 sectors.

If yous have any doubt that disrupters are trying to ride the moving ridge of lofty tech valuations, consider so-called fintech, or financial applied science. Most fintech companies charge their customers for what tin safely exist described as a fiscal service, which is why they're already regulated as financial firms.

Dissimilar Uber, fintech companies have no regulatory bogeyman to contrivance. But y'all're picking a fight if you refer to fintech firms as financial companies. And here's why: The P/E ratio of the S&P 500 Information Applied science Index is 24.iv, while the P/Due east ratio for the Due south&P 500 Financials Index is 15.one. No one wants to meet their visitor's value drib by 38 percent.

Still, this insistence that everything is a technology play won't last forever. Since 1990 -- the primeval year that numbers are available -- the Information technology Index's P/E ratio, excluding negative earnings, has been the richest among Due south&P 500 sectors just 39 percent of the time.

When tech valuations come up back to earth, I suspect that Uber and all the other disrupters -- er, applied science companies -- will care less about labels. In the meantime, they better hope the marketplace doesn't tag them with a less indulgent sector.

This column does non necessarily reverberate the opinion of Bloomberg LP and its owners.