Profit from disruption
Finance expert Aswath Damodaran has argued that disruption is easy but making money out of it is difficult, and that ride-sharing companies have not found a way to convert revenue into profit
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Ride-sharing companies have grown at a phenomenal pace globally in recent years and have disrupted the taxi business. Consumers are benefiting from this, gaining from discounted rides as companies focus on growth and market share. But there is another aspect to this—will investors in these companies make any money, given the current business model?
Finance expert Aswath Damodaran, in a blog post this week, argued that disruption is easy but making money out of it is difficult, and these companies have not found a way to convert revenue into profit. He has valued market leader Uber at $28 billion, against a valuation of $62.5 billion by its investors. Uber recently had to exit from China as it was burning a significant amount of cash to compete in the local market. It will be interesting to see how this business evolves globally. It is entirely possible that someone with deeper pockets will enter the market and upset incumbents’ calculations.