GO
Loading...

Why Uber's $17 billion valuation is justified

Uber, the omnipresent taxi-replacement service, has now been valued at close to $17 billion after the latest round of funding last week.

This represents a $13 billion increase in value based on its last round of funding. This is a staggering sum for a new company and an obvious huge leap above its previous pricing. On first glance, one might conclude that this is another Candy Crush-type of valuation that is both undeserved and temporary. But on closer look, I think Uber might be one of those companies that really has something to offer — and very well might justify its shocking valuation.


The Uber driver app on the windshield of Uber taxi, April 4, 2014, in Washington.
Evelyn Hockstein | The Washington Post | Getty Images
The Uber driver app on the windshield of Uber taxi, April 4, 2014, in Washington.

I asked a Silicon Valley executive what he thought of the valuation.

"This shows the power of the social media revolution in the emerging new economy. This will disrupt the current status quo," he said.

Read MoreHow rich you'd be if you were an Uber angel

Cynics of this company discount valuations based on the assumption that the master plan for this start-up is to replace random taxi service. After all, they wonder, how can a company simply providing taxi service really justify the current value placed on the company. I think this analysis misses the point.

Uber is less about taxi service and more about efficient use of logistics. Imagine that a company seeks to ship goods on an on-demand basis to the marketplace. In a connected world (where social media is utilized as an efficient method of connecting businesses), nimble shipping services could compete for that business on a more timely basis. Scheduling deliveries would be less rigid and more flexible. Costs would be reduced and goods could be transported more efficiently.

Read MoreUber's a risky ride for passengers, states warn

This is the world we are headed toward. FedEx and UPS are all focused on providing logistics to companies enabling them to be more efficient. Uber is seeking to be an entrant into this space and use its technology know-how to differentiate itself from the competition. There's no guarantee they will succeed, but it's a reasonable speculation that they will be on the cutting edge of an emerging trend and a worthy entrant into this space.

And, while the current taxi-replacement strategy isn't a business model that can justify a $17 billion valuation, there's plenty of money to be made in consolidating services in a fragmented industry. Taxicabs and limousines are about as fractured an industry as you can get. If technology can eliminate layers of excess costs (inefficient taxi and limousine services), Uber can make money in this space. It's the low-hanging fruit and provides the financial foundation for more lucrative business-to-business services.

Read MoreUber's $90k salary could disrupt the taxi business

So is Uber worth $17 billion? If they execute on their strategies, they have a shot at not being a Silicon Valley flameout and justifying its seemingly sky-high valuation. Why? They have identified a market that is real, sustainable, and profitable. They have a differentiated platform to address that need. That's the key when looking at valuations. Betting on an industry overhaul using technology to make it more efficient is where transformative opportunities lie. Uber is right there ready to grab its share of revenue as social media remakes logistics.

Commentary by Michael A. Yoshikami, the CEO and founder of Destination Wealth Management in Walnut Creek, California. He is also a CNBC contributor.

Squawk Alley