Uber uber alles

Yesterday, a strike by Paris taxi drivers forced us to improvise. No taxi would take us, and the trains were said to be stopped, so we turned to the internet. We tried a company with roughly $213m in sales last year, and a valuation over $18bn. That’s about 80 times sales. Compared to earnings, Uber’s stock is infinitely rich.

Then again, Uber says sales are doubling every six months. And there’s still a lot of business to take from conventional cabs. According to industry experts, Uber took much of it yesterday. The taxi strike in Europe forced travellers, like your editor, to sign up for Uber. The company said signups rose 850% yesterday.

The taxi industry is supposed to be worth about $11bn per year in the US alone. Uber takes 20% of sales revenue collected by its participating drivers. So, if it could get 50% of the US taxi industry, it could expect more than $1bn in revenue. Most of that would go to the bottom line, we guess, because the company, once established, has few costs. It is just a software program.

But wait a minute – investors seem to expect it will do much better than just half the US market. A billion in earnings barely justifies today’s market cap, and a billion in earnings is still a long way off.

And it may never arrive.

The trouble with high tech is that there is always higher tech. Who knows what apps are out there ready to eat Uber’s lunch?

But right now, Uber is the latest and, by some measures, greatest entry into the wild, wacky world of tech valuations. It is an innovation that connects the physical world with the world of the internet. You push buttons on your iPhone, and a taxi appears.

It was not obvious, to us, at first, that it would work. No one is more determined or more resourceful than a Frenchman who sees his revenue threatened by innovation. The taxi drivers of Paris aim to stop Uber any way they can.

What’s the best way to protect yourself from competition? Regulation! They want the new company so tightly bound it loses its competitive advantage. One proposal, for example, would require Uber drivers to wait 15 minutes before responding to a call.

Yesterday, Uber got the best advertising money can’t buy. Taxi drivers not only blocked traffic on the most popular road in the Paris area, the beltway around town – the ‘periph’ – they also took up positions on bridges and overpasses.

“We have to be careful”, said our driver as we left the apartment. “They threw a rock at me earlier today. It dented the hood.”

We felt his pain. The car was a black late-model Mercedes. It was not merely a crime to vandalise it; it was a shame.

FREE daily investment email from MoneyWeek
Receive our thought-provoking investment email Money Morning every weekday morning, plus occasional promotions, & become a smarter investor.

Please enter a valid email address

To sign up, enter your email address:

You almost have to get on the ‘periph’ to go to Charles de Gaulle airport. So, the big black sedan rolled down the access ramp and was soon headed east. All was quiet. Then, the traffic slowed. Above us, on the overpass, were taxi drivers carrying red and white banners and targeting Uber cars.

“Uh oh”, said our driver.

He had taken the precaution of removing the ‘Uber’ sign that normally appears on the dashboard. In the thick of traffic, the vandals may not notice.

In fact, they were preoccupied. One thing they hate more than Uber is a scab or strikebreaker, another taxi driver who fails to respect the collective action. They found one on the other side of the ‘periph’, and they were going for him.

In Latin countries verbal assault is common; physical violence is rare. Shouting, name calling, insults regarding one another’s mother, all are standard features of a traffic-related argument in Paris. The strikers added vandalism, but not much more.

Besides, the police were on the case. Two motorcycle cops appeared almost immediately.

As this drama took place on the other side of the highway, we slipped under the overpass and were on our way to the airport, back to Baltimore.

FREE daily investment email from MoneyWeek
Receive our thought-provoking investment email Money Morning every weekday morning, plus occasional promotions, & become a smarter investor.

Please enter a valid email address

To sign up, enter your email address:

MoneyWeek magazine

Latest issue:

Magazine cover
Powering ahead

The best alternative energy stocks

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


28 April 1789: Fletcher Christian leads the mutiny on the Bounty 

Shortly after leaving the beautiful island of Tahiti for home, Fletcher Christian led a mutiny against Lieutenant William Bligh on board HMS Bounty, on this day in 1789.

The Kids' Portfolio: the four best funds to buy for your children

Investing for your children's long-term future is an excellent idea. But what should you buy? The Kids' Portfolio is a simple collection of four funds intended to be tucked away for 20 to 40 years.