[confiscate]

that graphic is simple and naive

Here is an 60-minute interview, in 1999. The journalist/expert made the same argument as in your graphic, that a software company is overvalued because its market cap is higher than traditional companies

https://youtu.be/VuI-ss5aQU8?t=629

the interviewer literally laughed at how Amazon is overvalued, because its stock price was worth 20% MORE than a real company like Sears. Your graphic uses the same logic as that interviewer did in 1999.

[nostromo]

Sure, maybe.

But I'll note that for every Amazon there's dozens or more Pets.com. So, yes, maybe Lyft is the next trillion dollar company -- or maybe it's, you know, a cab company.

[confiscate]

Yes, either case is possible. Lyft could become Pets.com or Amazon.

You can argue that Lyft will become Pets.com, due to other reasons, such as growth potential etc. That would make sense.

BUT, the argument in your graphic, that a company is overvalued simply because its valuation is higher than traditional well-known brands, that ARGUMENT is flawed.

Lyft's valuation is totally independent of Ford's valuation. These are separate companies with separate paths. Amazon's valuation was not tied to Sears--the 60-minutes journalist made the mistake of connecting the 2 together. The argument behind your graphic is wrong.

[freyir]

The graphic isn't making an argument, it's stating a fact. If you think Uber's valuation is sensible, I don't think this graphic could sway you.

[confiscate]

No the graphic was posted to make an argument. That was the purpose of why that graphic was posted:

"I found this simple graphic a great distillation of why Lyft and Uber may be considered overvalued"

[freyir]

That's true. I think my point still stands (OP interpreted the graphic one way, you interpreted it another way), but I'm splitting hairs.

[confiscate]

What you said actually proves my point.

If Lyft becomes the next Pets.com and goes bust, its stock would be worth $0. If that happened, it would be laughable to say that Lyft is under-valued, simply because Ford is valued in the billions.

Ford's valuation has nothing to do with how Lyft is valued. To say that Lyft is over/under valued because Ford has X valuation, like what your graphic is saying, makes no sense at all.

[philwelch]

My rebuttal is to note the notion of "expected value". A company that has a 1/1000 chance of becoming a trillion dollar company and a 999/1000 chance of becoming a worthless company is worth 1 billion dollars.

And that's the most simplified model possible. If you have a 1/1000 chance of being worth a trillion dollars, you may also have a 10/1000 chance of being worth ten billion dollars, 100/1000 chance of being worth one billion dollars, and 200/1000 chance of being worth 100 million dollars. That adds $220 million of expected value. You can add another couple million if you account for the company still having liquefiable assets even in the case that it ends up folding like Pets.com (which ended up returning at least a few million dollars to their shareholders: https://www.sec.gov/Archives/edgar/data/1100683/000089161802...).

[philwelch]

The particular traditional companies in the graphic are, if anything, the worst possible cases of this.

For example, the graphic includes both Delta and American Airlines as well as Jetblue. Airlines are effectively a zero-margin business for some interesting reasons (https://philip.greenspun.com/flying/unions-and-airlines). You might say, so are Uber and Lyft, but airlines have a static business model that hasn't changed for decades, can't fundamentally change because it's regulated within inches of its life even after "deregulation", and Delta and American have no real room for growth.

Ford isn't really even comparable. It's a car manufacturer. At least airlines transport people from point A to point B. Likewise for Embraer, which manufactures jets.

Royal Caribbean is a cruise line, which puts it more in the "leisure" sector than the "transportation" sector. (Can you expense Uber or Lyft for work? Yes. Can you expense airline tickets? Yes. Can you expense a Royal Caribbean cruise? Not likely.)

And that leaves a shipping company and a car rental company, which are at least in the same ballpark as airlines in that they're basically logistics companies (with an optional customer service component), but Uber and Lyft are different from these in that Uber and Lyft don't have to manage the physical capital.

Do I still think Uber and Lyft are likely overvalued? Honestly, yes, and that's why I don't buy them. Am I shocked that Lyft is approximately as valuable as Delta Airlines? Not at all.