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Is Uber Really Worth $40 Billion?

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
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My Bloomberg colleague Serena Saitto broke the news today that Uber could soon be valued between $35 billion and $40 billion, and you might be tempted to hold up the ride-sharing company as the poster child for irrational technology exuberance.

After all, Uber raised money at an $18 billion valuation in June, and it’s pretty rare for a company to double in value in just six months. At $35 billion Uber would be worth as much to the market as Salesforce.com, an arguably overvalued software stock.

But Uber's whopper valuation also says something about its reach and utility, and it reflects how much more valuable tech companies can be when they become integral to our offline lives.

Facebook, for instance, built a massive network on our computers and mobile phones, but at the end of the day all that company does is transport bits, emotions and stories across the Internet. It’s one of the best Internet companies available to public investors, and it has a market cap of about $216 billion.

On the other hand, Apple’s iPhone is undergoing a transformation from a handheld computer to a remote control for the real world that can track our medical information, pay for our purchases and potentially connect and control our appliances. That’s part of the reason why Apple’s stock is reaching all-time highs and the company has a market cap of nearly $700 billion.

That brings us back to Uber, a company that moves humans and vehicles to and fro across a global network of roads and highways. It currently provides a backstop for weak public transit infrastructures, while wage stagnation and persistently high unemployment have also helped make driving for Uber an attractive option for cash-strapped workers. All of those factors helped create the conditions for a company like Uber to exist, and also laid the groundwork for a massive, global logistics network.

When looked at from that perspective, is it so surprising that the company could be worth as much as Delta or the railroad company CSX? In theory, there's little preventing Uber from making the same aggressive push into commercial transportation and delivery that it has already made in personal transportation.

Uber is also a successful software company that’s amassing a huge trove of data about its users. While the company’s data collection practices are, correctly, under fire, that still doesn't take away from the fact that the information it has about our real world lives is just as valuable - perhaps even more valuable - than what companies like Facebook glean from our social network “likes.”

At a time when everyone from Wal-Mart to General Motors is trying to turn their retail and manufacturing businesses into data-driven, tech companies, Uber in some important ways has already beaten them to the punch.

I’m not saying that there’s no way that Uber is overvalued. If, for example, regulators decided that the company had to change its insurance policies or treat drivers as employees that could certainly have a big, negative impact on its valuation. Yet Uber remains one of the few startups that bridges our online and offline worlds so well. That’s part of the reason why investors are pumping it up.

Rideshare competitor Lyft, home rental company Airbnb and the loan platform Lending Club are also good examples of companies that have real-world reach. They, too, have high, multi-billion valuations. When Lending Club prices its public offering next month we may see investors pay a huge revenue multiple. But private investors are currently betting that Uber will be the most successful of the lot, and its software easily outclasses the offerings of its competitors.

Uber still needs to show that it can also succeed in a real, offline world by meeting the needs of regulators, employees, drivers and customers. The company's been under fire lately for everything from its combative relationship with the media to privacy concerns. Now a Federal judge has asked Uber's chief executive officer, Travis Kalanick, to turn over his emails as part of a lawsuit that alleges the company deceived customers about driver gratuities. How Uber handles all of these issues will also affect its stratospheric valuation.

In the meantime, Uber has earned some important portion of its valuation - maybe even all of it - by having a vital, offline existence. Other startups can learn something from that.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the editor on this story:
Timothy L. O'Brien at tobrien46@bloomberg.net