Cool Business Model You Got There, Uber

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Following very quickly in Lyft’s footsteps, Uber has filed for an initial public offering, kicking off what many analysts expect to be the biggest IPO of the year, and possibly in history. The number $100 billion gets kicked around, which, whatever. Uber’s main sell is its scale: both that it is incredibly large—10 billion trips!—and also small by global standards, with only two percent of people in the 63 countries where Uber offers services using their company’s offerings. So much opportunity! So much potential!

Speaking of potential, here’s what Uber has to say about its own business in its filing for one of the most valuable IPOs in history, emphasis theirs:

We have incurred significant losses since inception, including in the United States and other major markets. We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability.


This is similar to the language Lyft used in its IPO filing, and that seemed to work out fine.


As long as we’re using the word “potential” as a euphemism for losing money, the sheer scale of Uber’s “potential” is staggering:

We have incurred significant losses since inception. We incurred operating losses of $4.0 billion and $3.0 billion in the years ended December 31, 2017 and 2018, and as of December 31, 2018, we had an accumulated deficit of $7.9 billion.


That’s a lot of money! How do they plan on not losing $8 billion in the future?

We will need to generate and sustain increased revenue levels and decrease proportionate expenses in future periods to achieve profitability in many of our largest markets, including in the United States, and even if we do, we may not be able to maintain or increase profitability.


This is just a fancy way of saying “we’ll need to make more money and spend less money, but even that might not work because we’re losing so much money.”

We anticipate that we will continue to incur losses in the near term as a result of expected substantial increases in our operating expenses, as we continue to invest in order to: increase the number of Drivers, consumers, restaurants, shippers, and carriers using our platform through incentives, discounts, and promotions; expand within existing or into new markets; increase our research and development expenses; invest in ATG and Other Technology Programs; expand marketing channels and operations; hire additional employees; and add new products and offerings to our platform.


They keep using the word “investing” but what they really mean is “subsidizing.” They’re going to keep subsidizing drivers and riders to artificially force the market of ride-hailing to a price point customers will actually accept, and hope one of their other businesses, which they will also have to burn money “investing” in, pans out.

These efforts may prove more expensive than we anticipate, and we may not succeed in increasing our revenue sufficiently to offset these expenses.


It’s worth pausing here to emphasize that some of “these efforts” are in fact efforts to cannibalize other parts of their own business.

Many of our efforts to generate revenue are new and unproven, and any failure to adequately increase revenue or contain the related costs could prevent us from attaining or increasing profitability.


I understand this is an investor sheet and Uber has to offer doom-and-gloom warnings like this for legal reasons, but it carries a bit more weight given the company’s historic inability to attain said profitability.

As such, we may not be able to achieve or maintain profitability in the near term or at all.


So what? Only suckers create businesses to make money. Every savvy capitalist knows the real money is in creating a company that loses almost $8 billion chasing moonshot revenue streams and subsidizing other people’s cab rides because one day you might disrupt movement.