Aswath Damodaran

Matthew DeBord is Business Insider's resident Tesla bear. His background is as a "car guy" automotive journalist, not as a financial analyst or financial journalist. This lack of a finance background painfully shows in much of his writing.

If you look at his author archive, he is literally publishing 4-5 Tesla related stories a week, often with some kind of clickbait title. To avoid running afoul of Graham's Hierarchy, let's consider his arguments.

- Tesla's valuation -

Before diving in, I think most people can agree that based off any kind of traditional financial analysis (DCF or comps), Tesla stock is overvalued. Musk himself has said this at times(https://qz.com/1031702/all-the-times-elon-musk-has-trash-talked-teslas-tsla-stock-price-as-overvalued/). Nasdaq estimates, perhaps generously, that the stock trades at a 36.57 P/E of 2020 earnings, so anyone buying into the stock today is paying for a decade or more of future growth today.

Aswath Damodaran has called Tesla a "story stock", one whose valuation is largely dependent on what scenario of future growth you believe in. He said in August 2017 that the stock is worth anywhere from $82.66 to $316.46, with his base case estimate of $151.85. You can see his assumptions mapped out here: http://aswathdamodaran.blogspot.com/2017/08/a-tesla-2017-update-disruptive-force.html.

Now to look at some of DeBord's "comparisons" between Tesla and other companies.

- Tesla vs. GM -

> "What Tesla considers to be an ambitious…

Seems to be in line with Aswath Damodaran's valuation estimate.

"From my perspective, this seems like an optimistic story, where WeWork generates pre-tax operating income of 10.07 billion on revenues of $80.5 billion in 2029, generating a 26.61% return on capital on intermediate capital investments. Allowing for a starting cost of capital of about 8%, the resulting value for the operating assets is about $29.5 billion, but before you decide to put all your money in WeWork, there are two barriers to overcome:

Possibility of failure: The debt load that WeWork carries makes its susceptible to economic downturns and shocks in the real estate market, and the cost of capital, a going concern measure of risk, is incapable of capturing the risk of failure embedded in the business model. I will assume a 20% chance of failure in my valuation, and if it does occur, that the firm will have to sell its holdings for 60% of fair value.

Debt load: As I noted in the last section, the company has accumulated a debt load, including lease commitments, of $23.8 billion.

Adjusting for these, the resulting value of equity is $13.75 billion, and with my preliminary assessment of shares outstanding, translates into a value per share of about $26/share."

Highly recommended read for those that haven't already: http://aswathdamodaran.blogspot.com/2019/09/runaway-story-or-meltdown-in-motion.html

What you're describing may be illegal.

A company cannot juice top line revenue with the full meal values like this as they report revenue to sell to investors and get ready to IPO. The revenue reported would need to be clearly a transaction revenue they get from facilitating the service between restaurants and hungry people.

troydavis' comment is correct. The full order values or GMV and Uber's separate cut of it (net revenue or transaction revenue) are both important numbers and both should be reported. But the total order value should not reported as a revenue.

A few years ago Groupon got in trouble for fishy accounting and had to restate earnings. http://dealbook.nytimes.com/2011/09/23/groupon-changes-its-revenue-accounting/?hpw

Also, for anyone looking for a more professional writeup about Uber's valuation, while he famously got it wrong at first I still think Professor Damodaran is the best one writing about it. http://aswathdamodaran.blogspot.in/2016/08/the-ride-sharing-business-is-bar.html

Thanks for the kind words!

I am the author.

If you're interested in fundamental valuation, there are quite a few great resources.

I highly recommend starting with:

Value: The Four Cornerstones of Corporate Finance

Investment Valuation, by Aswath Damodaran

I also recommend Aswath's blog https://aswathdamodaran.blogspot.com/

If you enjoyed the article, you might be happy to know there are several other analysis pieces on the Invariant Substack that cover specific companies and walk through valuation methodologies. There will also be many more pieces like this in the future.

Please sub and comment on the Listerine piece, as I'd love to correspond on the platform, and I'd be happy to provide guidance/answer further questions regarding valuation. If you provide any kind of identifier for your sub email, I'm also happy to answer questions and bounce idea via email. I'm always looking to connect with other curious people that love finance.

A reasonably sound place to start for investing as an individual is the Bogleheads wiki: https://www.bogleheads.org/wiki/Main_Page The general Bogleheads approach isn't to try to estimate value of individual stocks or sectors of the economy, basic idea is passive investment: buy & hold index funds to get diversified exposure to market returns, then minimise costs by avoiding funds with high management fees.
Bernstein's http://www.efficientfrontier.com/ is good reading, from perspective of individual investor.

If on the other hand you want to learn about how to estimate value of companies (this will probably will not have a good return on time or money invested for an individual compared to low effort passive investment approach) one place to start reading is http://pages.stern.nyu.edu/~adamodar/ & http://aswathdamodaran.blogspot.com/

The Uber article that you referred to as Nate Silver is not actually by him. Its by Ashwath Damodaran (The NYU corp finance prof)

http://fivethirtyeight.com/features/uber-isnt-worth-17-billion/

His basic assumption was to use the taxi market as the total addressable market (TAM)

Bill Gurley, a VC from Benchmark and one of the investors in Uber, lays out alternative scenarios for TAM including going after car ownership.
http://abovethecrowd.com/2014/07/11/how-to-miss-by-a-mile-an-alternative-look-at-ubers-potential-market-size/

Damodaran's response to Gurley concedes its probable/plausible/possible for uber to get into non-Taxi and larger markets:
http://aswathdamodaran.blogspot.in/2014/07/possible-plausible-and-probable-big.html

Bottom line: the optionality of uber going into these larger markets is what is driving these valuations