Uber's Stock Valuation: A DCF Analysis Case Study (FN 4535)

This case study assesses Uber Technologies' stock valuation using the Discounted Cash Flow (DCF) model to determine if it is overvalued. It details the implementation of the DCF model, including a five-year forecast based on Uber's financial statements from Bloomberg, determination of a long-term growth rate, tax deductions, depreciation calculations, working capital adjustments, and capital expenditure considerations. Free cash flows are measured, discounted, and summed to calculate the present value, with a terminal value added to determine enterprise value. The analysis also incorporates historical beta, WACC, relative valuation, and sensitivity analysis. The study concludes that Uber's stock is overvalued according to the DCF model, suggesting that investors should consider selling their shares. Desklib provides students with access to this and other solved assignments.

Running head: UBER TECHNOLOGIES 1
UBER TECHNOLOGIES

Running head: UBER TECHNOLOGIES
Executive Summary
Uber technologies commonly known as Uber is an American based company which offers
the services that are inclusive of peer-to peer rides and they can also be shared. The below
report discusses about the implementation of DCF model and how well it can define whether
the share price is overvalued or undervalued. Further, the rationale behind the DCF model has
also been discussed to get an overall understanding of the case study.

Running head: UBER TECHNOLOGIES
Table of Contents
Executive Summary...................................................................................................................2
Introduction................................................................................................................................4
5 year forecast steps...............................................................................................................4
Rationale behind DCF................................................................................................................5
Intrinsic value per share.........................................................................................................7
Historical Beta........................................................................................................................7
WACC....................................................................................................................................7
Relative Valuation Analysis...................................................................................................8
Sensitivity Analysis....................................................................................................................8
Conclusion..................................................................................................................................8
References................................................................................................................................10

Running head: UBER TECHNOLOGIES
Introduction
Uber as a company also possesses, the service hailing, food delivery and provides the micro
mobility with bikes and scooty. Covering over 785 metropolitan areas worldwide the
company is originated from San Fransisco. Uber can be used in two ways namely through its
website and applications available on Mobile Phone. The revenue of the company is currently
at US$11.27 billion for the financial year 2018. With the team of 22263 worldwide the
company is serving a lot of the users. In the United States, a 67% market share for sharing the
ride in early 2019. The National Bureau of Economic Research estimated that, in 2015, Uber
had accounted for $6.8 billion in consumer surplus (Uber Technologies MS, 2018).
5 year forecast steps
The forecast for Uber technologies have been done with respect to the financial statements,
available on Bloomberg. The five year forecasts are taken from the balance sheet and
thereafter the DCF model is applied to get an insight of the intrinsic value of Uber
Technologies. The data has been accessed from the excel file where the balance sheet and the
income statement of the company has been provided already. Secondly, the growth rate has
been decided long which the operating profit will move for the next five years. The tax has
been deducted from the profits to arrive at post tax profit figure (Maadani & Motamedi,
2016).
Further the depreciation has been calculated and added to the profits; simultaneously the
working capital is deducted along with the capital expenditure. The free cash flows are
measured to identify how much cash can be generated after accounting for the capital
expenditure such as purchase of plant, machinery or equipment. The FCF are given the

Running head: UBER TECHNOLOGIES
discounting factor to calculate the present value of the cash flows. The next step is to figure
out the summation of the cash flows at present value (Tan & Yu, 2019).
The free cash flow is calculated after adding the terminal value to its amount, which is
assumed to be 4% for the current DCF model, in case of Uber Technologies. The free cash
flow is divided by the difference of cost of capital and terminal value in order to arrive at the
present value of the terminal value. Further, the free cash flows are added to the present value
of the terminal value to get the enterprise value. If there is an debt owned by the company in
the current year, it shall be reduced to get the value of the Equity. The fair value of the share
can be arrived at by dividing the outstanding shares (Behr, Mielcarz & Osiichuk, 2018).
Rationale behind DCF
 The rationale of DCF is directly linked to financial transactions which allow the
conversion of future cash flows into present cash flows and vice versa. The cash flows
are discounted at the weighted average cost of capital (Jennergren, 2019).
 In short, larger and more firmly established companies with fairly steady growth
histories can use the discounted cash flow model and a better analysis can be done in
their cases. Hence, for the case of Uber Technologies, discounted cash flow model is
found apt (Wafi, Hassan & Mabrouk, 2015).
 Above all, DCF model can be utilized as a once-over to verify everything is ok.
Rather than evaluating the reasonable characteristic worth, the present offer cost of
the organization can be connected to the model, and working in reverse, DCF model
will tell how a lot of the organization's stock is over-esteemed or underestimated, and
furthermore whether the present stock value is supported or not (Duchesne, Savelli &
Cornélusse, 2019).
 The projected capital expenditure defines the implementation of DCF model.

Running head: UBER TECHNOLOGIES
 The other methods of valuation are quite easily to calculate, however, they do not
seem to be authentic or reliable. The reliability is under the question as to when the
entire stock market moves up and down. DCF cuts across this complex situation and
calculates the intrinsic value in the best possible manner (Chua & Liu, 2019).
wacc 6.80%
DCF Method -8.97%
Particulars 0 1 2 3 4 5
DCF Method 2018 2019 2020 2021 2022 2022
Operating profit Before
Interest and Tax -2766.000
-
5919.000
-
8181.830
-
7160.822
-
4802.031
-
8596.55
6
growth(%) 4% 4% 4% 4% 4%
Tax 248.00 260.40 273.42 287.09 301.45 316.52
Post-tax operating profit
(NOPAT) -3014.0 -6179.4 -8455.3 -7447.9 -5103.5 -8913.1
Add: Depreciation &
amortization 426 480 487 495 502 509
Less: Change in working
capital 152.00 155.80 159.70 163.69 167.78 171.97
Less: Capex (558.00) (585.90) (615.20) (645.95) (678.25) (712.17)
Free Cash Flow to Firm -
2,182
-
5,269
-
7,513
-
6,471
-
4,091
-
7,863
FCF growth 1.41 0.43 (0.14) (0.37) 0.92
Discount factor 1.000 0.936 0.877 0.821 0.769 0.720
PV of Free Cash Flows
(2,182.00)
(4,933.80
)
(6,586.35
)
(5,312.11
)
(3,144.51
)
(5,659.2
1)
Sum of present values of
FCFs (22,158.77
)
Free cash flow (t+1) -4254.7
Terminal value 4%
Present value of terminal
value -151954
Enterprise Value (174,11
3.09)
Less:
Net debt 6869.00
Minorities
Equity value (180,98

Running head: UBER TECHNOLOGIES
2.09)
Fair value per share
(OMR) -396.02
Upside/Downside -1490%
28.49
Intrinsic value per share
The intrinsic value of any share is mainly dependent on the internal factors prevailing in the
management. It eliminates the external noise involved in market prices. Another widely used
method is the discounted cash flow (DCF) method. As per the calculation made above the
intrinsic value of Uber is $21.38. The share price in comparison to the market value the share
is overvalued by 25% (Drabikova & Svetlik, 2018).
Historical Beta
A beta coefficient is a measure of the volatility, or systematic risk, of an individual stock in
comparison to the unsystematic risk of the entire market. In terms of the statistics, beta
presents the slope of line via regression from the perspective of an individual stock, and their
returns over the market. The investors can get an insight of the beta to tackle the stock, which
travels parallel to, what the rest of the market is travelling. The volatility or the risk of the
stock is compared to the market. In order to understand the beta value of the stock, the
“market that shall be used must be in association with the stock. The beta value of the Uber is
1.95 (Uber Technologies, 2018).
WACC
Weighted average cost of capital also known as WACC, is the rate that the company is
expected to pay on average to all the shareholders to finance the assets. In common terms the
WACC is commonly referred to as cost of capital. The major feature of WACC is that, it is
not affected by the management but is dictated by the external market. WACC is a mixture of
the cost of equity as well as the cost of the debt. The WACC of Uber can be found out from

Running head: UBER TECHNOLOGIES
the online website, but in the present scenario WACC is 6.80%. The value of equity comes at
5.30% whereas that of the debt comes at 1.50% (Ondraczek, Komendantova & Patt, 2015).
Relative Valuation Analysis
In order to assess the financial health and the valuation of the business, the relative valuation
model is implemented in the business, in comparison to its competitors or other industry
peers to get an insight of the key performance of the company. Like absolute value models,
investors may use relative valuation models when determining whether a company's stock is
a good buy (Singh & Bansal, 2016).
Sensitivity Analysis
Sensitivity analysis is the method used to decide how autonomous variable qualities will
affect a specific ward variable under a given arrangement of suppositions is characterized as
touchy investigation. Its utilization will rely upon at least one information factors inside the
particular limits, for example, the impact that adjustments in loan fees will have on a bond's
cost. Sensitivity analysis is one of the devices that help chiefs with in excess of an answer for
an issue. It gives a suitable understanding into the issues related with the model under
reference. According to the sensitivity analysis the two variables are taken into consideration
such as growth and WACC. The sensitivity of UBER stock can be seen and evaluated in
excel file with different range of growth rates. The table has been presented below
(Drabikova & Svetlik, 2018).
Conclusion
From the above analysis, it can be stated that the stock of UBER as per the calculations of
DCF model is overvalued in terms of the present value of the stock, that is intrinsic value.
DCF valuation isn't simply monetary advanced science. It likewise has down to earth

Running head: UBER TECHNOLOGIES
applications that can make you a superior financial exchange speculator since it fills in as a
basic analysis of what an open organization would be worth in the event that it were esteemed
equivalent to practically identical privately owned businesses. Hence from the point of view
of the investor the shares of Uber shall be sold and as per the current case study UBER is
overpriced.

Running head: UBER TECHNOLOGIES
References
Behr, A., Mielcarz, P., & Osiichuk, D. (2018). Terminal value calculation in dcf valuation
models: An empirical verification. e-Finanse: Financial Internet Quarterly, 14(1), 27-
38.
Chua, G. A., & Liu, Y. (2019). Sensitivity analysis on responsive pricing and production
under imperfect demand updating. Naval Research Logistics (NRL), 66(7), 529-546.
Drabikova, E., & Svetlik, J. (2018). SENSITIVITY ANALYSIS APPLICATION IN THE
COMPANY VALUATION: THE CASE OF DISCOUNTED CASH FLOW
METHOD. Ad Alta: Journal of Interdisciplinary Research, 8(1).
Duchesne, L., Savelli, I., & Cornélusse, B. (2019). Sensitivity Analysis of a Local Market
Model for Community Microgrids. PowerTech Milano 2019 Proceedings.
Jennergren, P. (2019). Calibration of DCF valuation in litigation: The case of HQ (No. 2019:
2). Stockholm School of Economics.
Maadani, M., & Motamedi, S. A. (2016). A comprehensive DCF performance analysis in
noisy industrial wireless networks. International Journal of Communication
Systems, 29(11), 1720-1739.
Ondraczek, J., Komendantova, N., & Patt, A. (2015). WACC the dog: The effect of financing
costs on the levelized cost of solar PV power. Renewable Energy, 75, 888-898.
Singh, A. K., & Bansal, P. (2016). Impact Of Financial Leverage On Firm’s Performance
And Valuation: A Panel Data Analysis. Indian Journal of Accounting Vol. XLVIII (2),
73-80.
Tan, H., & Yu, C. (2019). Valuation Uncertainty and Analysts’ Use of DCF
Models. Available at SSRN 3274391.

Running head: UBER TECHNOLOGIES
Uber Technologies MS, (2018). Financials. Retrieved from
https://www.morningstar.com/stocks/xnys/uber/financials
Uber Technologies, (2018). Share Price data. Retrieved from
https://finance.yahoo.com/quote/UBER/
Wafi, A. S., Hassan, H., & Mabrouk, A. (2015). Fundamental analysis models in financial
markets–Review study. Procedia economics and finance, 30, 939-947.