Quantitative analysis of investing in Uber
If you prefer investing in a global ride-sharing brand that is considered one of the most innovative firms in the world, has revolutionized the taxi industry and has a market cap of over $19 billion; then Uber is the best choice for you.
As mentioned, Uber mainly offers two services in Karachi: Uber GO and Uber X. Uber GO operates in the same segment as Careem GO, offering lower rates than its closest rival. On the other hand, Uber X offers services closely matched by Careem’s Business sector. We next compare Uber’s Go and X and indicate which of the two services offer higher returns to the investors.
The chart shows the yearly revenue of Uber GO and Uber X. We can clearly see that Uber X earns higher revenues in our analysis primarily because of the higher rates it charges. Uber GO charges less than half the amount Uber X charges on a per km basis. Moreover, Uber Go’s base rate and per minute rate is also targeted towards the middle-class population of the economy, as opposed to Uber X, which targets the upper class segment. Lastly, we assume that Uber Go gets more rides on a daily basis and travels more distance in a year as compared to Uber X.
The chart above shows the Net profit of Uber’s two services. Uber GO’s low net profit is a result of lower pricing adopted by the firm. Moreover, Uber charges 25% of revenue per ride; this takes in a large proportion of the investor’s income and significantly reduces the bottom line. Due to its higher rates, Uber X still makes a reasonable profit for the investor, but one can argue that the number of customers using this service on a daily basis is extremely low.
The table above shows few other financial measures required to determine which of the two services offered by Uber provides a higher return to the investor. Uber GO tops Uber X on all fronts; it has a higher return on investment, its payback period is half of Uber X’s, and it has a higher NPV. Even though Uber GO has a lower net profit, a cheaper investment of Rs. 500,000 incurs a higher ROI and a lower payback period. Furthermore, Uber X has a lower NPV due to the expensive upfront cost of the car despite have higher cashflow than its counterpart.