These days, being profitable is considered harmful. More profits = more taxes. Getting virtual “profits” into stock appreciation and structuring revenues to pay nearly zero tax is the name of the game today, and only big corporations can afford it. It is small and medium businesses that pick the bill.

Don't forget also, it's believed that "being profitable" = "you're done with hypergrowth", at which point the whole band of capital looking for 100x unicorns moves on.

Remaining unprofitable is a part of maintaining the illusion that the company has huge upside in the future.

Yes, I suppose this is also correct. I just wanted to reiterate that with modern creative financing, a large company can stay “unprofitable” basically forever and still keep shareholders happy.

The is only true as long as shareholders believe that the company gets a return on its investments.

If they believe it just destroys the money it keeps, they will start demanding a payout.

Uber isn't rolling profit back into the company like Amazon or others do, they are literally loosing money on every ride. There's no profit to hide from the taxman.

Right. Amazon is and has been accumulating a massive vertically-integrated empire of physical infrastructure they actually own or lease.

Uber is accumulating… uh. Microservices? Negative goodwill?

Markets, it's acquiring markets. I'm no Uber fan, but come on, they're moving into more and more cities world-wide, often without competition save the local taxi firms.

It's achieving temporary local marketshare subsidised by massive losses. The moment Uber charges prices it can actually profit from, its “markets” will vanish.

Except it's not acquiring them so much as renting them, paying each month for the privilege to hold on to the marketshare necessary to also lose money in the next month.

Amazon buys a warehouse and then shortly after turns a profit on it which they use to buy another warehouse. Uber buys users and then shortly after borrows more money to buy other users.

> Uber isn't rolling profit back into the company like Amazon

They kind of are. It’s just a matter of timing. They are rolling future profits, bankrolled by VC.

And betting those profits come in the process. Huge difference.

Same reason I requested $0 salary this year...

Seriously, this argument doesn't make sense to me? How can them spending more money help them make more because of taxes?

Yeah, it's a pretty stupid argument that has somehow become one of those contrarian memes people like to use to appear smart.

I guess it's inspired by Amazon's history of reinvesting, but missing the point that Amazon's motive most certainly was to actually invest into growth.

There are of course many companies that engage in all sorts of morally bankrupt but legal tax optimisation strategies. But Uber is rather different from, say, Apple, in that Uber has absolutely no need for creativity to depress their profit. They are haemorrhaging money the old-fashioned and totally legit way.

It would be better for you to collect stock on a company like google at 0$ salary, and just pay long term capital gains when you sell than salary.

Makes a huge difference long term, as one is filled with payroll taxes and high rates, and the other is 15%.

That doesn't make sense. The stock grant will still be considered normal income to you and taxed as the salary is taxed. Any difference in the stock price after it vests and you sell will be either short term or long term capital gain.

So if you consider getting all salary in cash and then buying GOOG (or any other stock) with it, you come off only a month or two late on the period for which you are holding the stock. And for that, you lose out on the diversity of the stock.

This also assumes that your GOOG stock starts vesting immediately and there is no cliff. Otherwise, you will be holding the stock for "cliff" period longer if you just get cash salary and buy the stock.

Disc: Googler but this comment doesn't have anything specifically to do with Google. Google is just an example here.

Of course, you want all your stock gains to fall under long term capital gain. Google already has the market price in, but all startups don't.

If you make 200k a year for 10 years, vs get no salary for a startup for 10 years and then its sold out for 2 million dollars, they are completely different tax conditions.

Im not an expert or have been through this, but if you sell 2 million dollars at 15% long term rate vs the 35~% + medicare of salary, the difference will be huge.

If you owned enough assets that could be used as a collateral, yes, you could request $1 salary. Many CEOs, Steve Jobs in particular, used to do that. He already had enough cash for day-to-day expenses (like buying a new Mercedes every 6 months); more significant expenses were financed... differently.

You should be already rich and structure your capital properly for this to work.

I get that, as odd as it is. But my understanding was that Uber wasn't doing that at all. I haven't heard of them using slightly dubious accounting tricks to pay more money to shareholders while showing no paper profit. I thought their expenses were simply way ahead of their revenues with no clear way to bridge the gap, and the shareholders are losing money and being diluted too.

It’s not about taxes. If you don’t have a way to reinvest your cash that means you’re out of ideas and are unable to grow.

Amazon didn't turned profit for first 5 years or so after IPO. If you go back 15 years down the history, you will find many articles/analysis doubting if they would ever become profitable. However no one doubted that online retail was the future and brick-and-mortar stores will increasingly become part of the history.

I see a lot of parallels here. No one doubts anymore that app-based cabs are the future and traditional taxis business is pretty much done now. So if you take that as foundation then there has to be one or two companies that would eventually dominate this business. With first mover advantage, Uber has good chance of being one of them.

This is a foolish viewpoint. Amazon got immense economies of scale as they grew, Uber’s costs scale alongside it.

It drives me crazy that so many people equivocate them.

Amazon also built out a huge logistics infrastructure which they own and is hard to replicate (not just know-how, but warehouses and robots). Uber don't own the cars or employ the drivers, they have a phone app and a brand name.

I don't understand why uber's costs don't scale well. They make an app that drivers use. They're not having to buy cars or hire drivers to grow. They just need their app to function. What is all their money going towards?

Is all that money lost just subsidizing the cost of the ride? If they stop subsidizing the drive price, which they will have to at some point I imagine, will people just abandon the service?

There's two ways it goes: squeeze drivers or squeeze riders. The ironic part of their position is as it makes a market on both sides, squeezing either will result in a loss of riders/drivers to alternatives.

This writing has been on the wall for ages, but people keep looking past it.

Uber I think somewhat internally knows this, and have thus tried either moonshots or diversifying. Uber Eats actually looks to be profitable since you take driver surplus and turn it into profits, simplifying a bit. Self driving moonshots are just that - moonshots.

You can already see the effects of them squeezing drivers with recent strikes and issues including a possible 600M+ arbitration costs from drivers.

Good point. Have you read Hubert Horan's articles on Uber (especially those on nakedcapitalism.com)?

Retailers can use economies of scale to lower prices and increase variety of products. There are no economies of scale in Uber the way it's structured now and the service is largely homogeneous. There could be economies of scale with self-driving cars, but why should they be the winner there?

The only way they managed to offer lower prices (which is the main concern to riders) is through VC subsidy. There is simply no way to significantly lower prices for taxis, unless you have self-driving cars.

The only thing Uber has is a limited power of a local network effect which is a relatively weak moat.

Uber is totally banking on driverless cars to lower to cost per mile to near nothing.

I agree that Uber is betting on driverless cars to lower the cost per mile. But I think Tesla will beat them to market much much before them considering Tesla already has the tech. Elon even hinted on the Tesla taxi fleet in the next couple years. Now I realize Elon's got poor judgement on timing but I still think they will be able to achieve that much earlier than Uber. And if they do, I honestly don't see Uber surviving.

There's no evidence that Tesla has any distance on Uber, other than Elon's word which means jack. Waymo is thought to be the leader in this space.

> Elon's word which means jack

He has proved his words countless times now. I have no idea what you are talking about. Only criticism I have about Elon would be his estimations on the time but I work in the tech field too and I can relate to issues coming up which postpone the deadlines.

How exactly is Waymo thought to be the leader? It's like the same argument short sellers have been making for years that Tesla electric cars will be overtaken by other car manufacturers. Come back to me when Waymo has overtaken Tesla in actual and on the market product.

Well, for one thing Waymo's vehicles haven't been involved in any deadly accidents. Tesla's self driving cars are unable to avoid driving into the undersides of trucks. So it's hard to see Tesla as the leader here.

> other than Elon's word which means jack.

I think history has demonstrated that betting against Musk is not a wise choice.

I think you can make the same point without calling it foolish.

> Amazon, the company that everyone loves point to as an example of how losing money eventually makes money, lost a combined $2.8 billion over its first 17 quarters as a public company, significantly less than the $4.5 billion Uber lost in 2017.

Source: https://oversharing.substack.com/p/bird-raises-prices-to-tri...

Was Amazon as big as Uber in those first 17 quarters (in ters of revenue)? If not, it's not an apples-to-apples comparison.

Comparing Uber to Amazon is just silly. Amazon had/has a sustainable, robust business model. They chose to re-invest.

Uber burns money like it's going out if style and has no clear path to profitability.

"Please don't insinuate about astroturfing. It degrades discussion and is usually mistaken. If you're worried, email us and we'll look at the data."

https://news.ycombinator.com/newsguidelines.html

Just like Amazon at its IPO.

Maybe I don't remember it well enough but Amazon's business model seemed a lot more ... tangible than Uber's don't you think?

You don't think selling taxi rides is a tangible business model?

At a loss without any notion of how to make it profitable in the near future? No, I don't.

I see no evidence that they lack a notion of how to make it profitable. Are they doing it in the near future? No, but why do they need to? There are clearly plenty of people happy to fund for the long-term payout.

From what I saw in the S-1, their core platform -- which I assume is ride hailing -- was profitable until Q4 2018. They offer heavy incentives in order to compete, but once they're sufficiently established in a market, looks like they can become profitable on that front by no longer offering promotions in order to fight Lyft/whoever.

They just need to stay solvent longer than the competitors, and being in more markets than the competition should help with that.

Their R&D is also massive, but they could stop most of that if they needed to.

The traditional system did, I don't see Uber doing it.

As a heavy early Amazon and Uber user, I'd say not really. Both are pretty revolutionary and I certainly have been paying Uber a lot more than I was paying Amazon when they just sold books.

I get how Amazon can be seen as revolutionary, but not how Uber (or even Lyft) is. I mean, when I think of catching a taxi back in the day, the only difference is that I made a phonecall instead of using an app to get the service. If it's the "gig economy-ness" of it, we had hacks in my hometown. Maybe there was a license requirement to be a hack, but it always felt like hacks were just regular schmoes who would charge a flat fee to take you somewhere.

I've had very extensive and very negative taxi experiences around the world. Uber is night and day from a UX perspective. Being able to see where the car is when it's on the way, pre-inputting your destination, paying through the app... The gig economy aspect was definitely revolutionary as well. It's essentially changing the nature of work (love it or hate it).

As much as I love Amazon and always have, in the early days it was "just" ordering books online. Yes, that was great and again the UX was great but it didn't seem as revolutionary as Uber.

I don't see how the UX thing is so revolutionary. I live in a city with 120k people, and the app of the local taxi company here does all of those things as well.

But did they do that before Uber?

Not OP, but if they weren't doing it before, and just copied Uber, doesn't that show how weak their moat is? The same could happen with autonomous vehicles as well then.

The topic is revolutionary UX not moats.

Ok, if the UX is revolutionary, then what prevents others from copying it? It still seems like the moat for the UX isn't that great.

That's not been my experience and definitely not before Uber existed and forced people to start copying them.

That's some exemplary public service by Uber, actually. They may actually deserve their status as a non-profit.

Yes you might be paying Uber more, I pay them about $300-$400 a month between our occasional use and my teenage son getting around (still cheaper than a car + insurance), but they lose money on each ride. Amazon has high fixed costs while they were building infrastructure. Uber has negative marginal profits.

Edit: negative marginal costs -> negative marginal profits.

I can't get a clear reading from Uber's most recent financials filing in Feb to determine that they have negative marginal profit. It looks the opposite to me. Given their substantial gross profits, I have to think that they last ride they sell is profitable.

What gross profits?

For FY2018, Uber reported $5.6 billion in gross profits and gross profit margins around 50%.

https://craft.co/uber/metrics

So they made money as long as you ignore stuff like operating expenses..

That’s the definition of gross profit. Within operating expenses, advertising is close to a cost of profits in a way that R&D isn’t.

It’s why we use multiple metrics to evaluate a business, but it’s clear that Uber has large positive gross margins.

When it comes down to it. The only thing that makes a company viable is whether they are making more money than they are spending.

Ignoring all other expenses and saying that a company is a good business is ignoring reality.

I’m not just choosing a method that makes Uber look bad. They are not profitable or successful based on a legal GAAP definition of profitable.

If we just cherry pick numbers, we might as well think that WeWork’s made up metric of “community adjusted EBITDA” is valid.

https://news.crunchbase.com/news/wework-details-run-rate-rev...

Selling a $20 bill for $18 is unsustainable. Selling a $20 bill for $40 and having $15 of advertising expenses and $15 of R&D expense might be sustainable. I think Uber is comically overvalued here, but still is a viable business which is profitable in its core operation.

Marginal profit, rather. Negative marginal costs would be pretty sweet.

In the 1997, Amazon's proposition of "Online retailer" was also pretty far fetched. It wasn't obvious that their model was going to make them one of the largest retailers in the world.

Online retailers wasn't far-fetched at all. It wasn't obvious they were going to become the everything store and dominate the market, but it wasn't like people were perplexed by a business plan of selling books online and sending them to consumers.

If people are perplexed by uber today it's because the unit economics look horrible, and it doesn't seem like they will improve without a major technological advance.

Edit: TBF, I was curious so I checked out AMZN's first year of trading: https://finance.yahoo.com/quote/AMZN/history?period1=8528832...

They dropped 20% on day one. I don't think that reflects investor skepticism re: shopping online, but skepticism re: the myriad risks they faced as one of many money losing online retailers.

Even with a major technical advance it's not obvious that they'll have a moat to defend their margins. All of the ride sharing platforms might just end up competing to the death on price without anything else to differentiate on, and in that future I'd imagine the person with the cheapest supply chain will win, and I don't see why that would be Uber.

It wasn't farfetched, everyone had the same idea, there were dozens of online retailers that IPO'd in those years. Amazon was just better managed so it was one of the few that survived the dotcom crash.

They also started with selling media, which is the perfect industry to get people comfortable with shopping online as quality is nearly assured.

Right. At the time, I thought Sears would dominate that business. They had the big-catalog fulfillment thing down, and had for a century. All they needed to do was take it online. But Sears gave up on general mail order in 1993, when they discontinued their huge print catalog. They thought WalMart and the malls had won.

I duno, buying stuff online seemed like the way of the future at the time IMO. When, how much and etc was just a matter of timing.

The idea of "people won't buy things they can't judge by holding it in their hands" was still strong back then. That's why Amazon was successful selling books where quality was trusted implicitly without that physical judgment being necessary.

TechCrunch did a good job looking back at Amazon's IPO and it's a good read to clarify what Amazon was when it went public (a bookseller, not general retail), how insane its growth was (revenue up about 3,000% YoY from 1996 to 1997, more revenue in the quarter before its IPO than the entire previous year), and how fast the IPO came together (12 days to S-1). Even for all that growth, revenue was still around $15M. It was a minnow but it played all of its cards about as right as it could for an IPO.

https://techcrunch.com/2017/06/28/a-look-back-at-amazons-199...

Doesn't ride sharing seem like the way of the future in your opinion?

Who's doing ride sharing? Certainly not Uber

> Uber Technologies Inc. is a transportation network company (TNC) offering services that include peer-to-peer ridesharing, ride service hailing, food delivery, and a bicycle-sharing system.

https://en.wikipedia.org/wiki/Uber

Not necessarily.

So is gig economy. Jobs will continue to decline.

My feeling though is that Amazon had a much larger moat to build, with distribution networks, warehouses, logistics etc.

With Uber, what's their moat, so that when they raise prices to become profitable users don't just move away?

Lyft/local taxi companies/public transport, all have the infrastructure to provide the service that uber provides.

Lyft has to be in business till then. Local taxi companies are more expensive than Uber and inconvenient. Public transport is barely used. Uber is providing a subsidized public service while employing a lot of people.

The moat is there but the question is one of diversification and sustenance as a public company. In the coming days, there'll be a massive internal push to reduce costs, diversify and become profitable. If the foundation of the company is strong, they'll be able to get through this period. Instead, if most of the early employees jump ship (which I strongly suspect is likely to happen), it's going to meander. For Uber's own sake, having a mature and repentant Travis back might not be a bad thing. They'll need a second wind at some point.

> Local taxi companies are more expensive than Uber and inconvenient

Uber essentially sets money on fire in order to make the rides cheaper than alternatives, but that will eventually end. I've got some bad news for you about what happens to prices when that occurs.

Of course that is the ultimate goal of Uber, and all ride sharing systems: to destroy any and all local public transit and competitors, no matter the cost, by setting obscene amounts of money on fire and then, when it's all said and done, they get to be the only name in town and price however high they want.

(Side note, but it's going to be legitimately hilarious when Uber re-introduces the concept of "buses" and tech nerds here drop their jaws in disbelief at how amazing it is.)

> Public transport is barely used.

I've got some bad news about places outside of the US (and even many places inside the US).

> Uber is providing a subsidized public service while employing a lot of people.

No they don't; they actually do not do either of those things. Uber isn't a "public service", by definition, that is, unless words simply don't mean anything anymore. It's a business designed to make money; the fact that you confuse these two proves Uber's marketing is working on you, not that it's actually true in any meaningful way.

They also don't actually "employ" any of their drivers, the largest part of their "work force", and they have argued that position in court as well in order to avoid paying benefits, etc for their drivers. And of course, their inevitable goal is to just move to autonomous cars as far as possible, meaning those "employees" (who aren't actually legally defined as such) will eventually get kicked out of the whole system, if they can get there. Of course, once that happens, the tune will go from "uber employs a lot of people, and therefore they're good" to "why did you ever expect uber would keep employing you? just get another job" over night, without a hint of self-reflection at all.

> (Side note, but it's going to be legitimately hilarious when Uber re-introduces the concept of "buses" and tech nerds here drop their jaws in disbelief at how amazing it is.)

Lyft already did: http://nymag.com/intelligencer/2017/06/lyft-reinvents-the-bu...

> Uber isn't a "public service", by definition, that is, unless words simply don't mean anything anymore. It's a business designed to make money; the fact that you confuse these two proves Uber's marketing is working on you, not that it's actually true in any meaningful way.

Is Delta Airlines "public transportation"?

Local taxis are perhaps only more expensive due to Uber burning VC cash to compete?

Public transport is barely used in the USA perhaps but that's not the only market Uber needs to compete in to succeed.

And this isn't taking into account Uber's many run-ins with local authorities, which are dragging on , costing money and have the possibility to shut them out of some markets.

From what I understand Uber's main answer to this is "autonomous taxis" but to me that's a long way from being a viable business model.

Here in Melbourne Australia, Uber has caused the government to deregulate the car hire/taxi business. So the cost of entry for car hire is identical for an Uber driver or other limo/car hire services. It's the cost of the car, the cost of the driver, and the cost of access to bookings.

For street hail, the cost is higher because the government sets regulation about the equipment (eg compulsory CCTV, meters etc).

The net result is that the cost of an Uber ride is almost identical to a street hire, identical to using one of the other apps that are around (13 cabs, Ola etc).

Uber has a name/brand advantage, but it has lost the cost advantage over the old taxi model and it has lost the app advantage as the app is easily replaceable.

Many drivers operate on more than one app and street hail cabs (the "original" taxis) operate on both.

Uber's business model for their core business is unsustainable, the margins and operating costs are identical to other operators, there is no advantage of scale.

> Public transport is barely used.

In one of Uber's largest markets, NYC, public transport is extensively used, and I assume that many price-sensitive Uber users will go back to taking the subway or bus if Uber raises its fares too much.

Andy Byford is one of the most dangerous people in Uber's world.

Luckily for them: Cuomo and De Blasio have a running bet going to see who can bugger it up more completely.

Oh lyft will be in business until then. How do you think Google is planning on selling their Waymo rides?

I would personally pay twice the rate I pay for an Uber to be honest.

Amazon was cashflow positive from the early days and raised less than $100m in its entire existence.

To be fair, AMZN was valued at $400mn at the IPO and not $80bn (only in 2011 did Amazon reach that valuation).

Amazon went public in 1997 with revenue of $16M in Q1 of that year. Its revenue was up a startling 1,800% or so YoY. Its losses were about $3M, so about 19% of revenue. Its market value at launch was about $438M, about 27x quarterly revenue.

Uber's Q4 2018 revenue was about $3B, up about 25% YoY. Its losses are a little hard to parse due to some tax shenanigans, but maybe $865M is about right (or maybe it should be worse), so 28% of revenue. Its market cap right now is around $85B, about 28x quarterly revenue.

Amazon was cash flow positive within few years (6?). Uber still isn't

Can you elaborate?

Amazon stock success has always been built on AWS.

It went from $18 to $106 in 1997-1999 and it was not due to AWS.

Amazon was a public company for almost 10 years before AWS was a product.

Uber is valued more for its potential and growth. Uber is optimizing growth and revenue before it optimizes profit (which could take another decade). See Amazon.

"optimizing growth and revenue" by subsidizing the operations. That isn't "optimization", it's sunk cost that will never be recovered.

Uber is already withdrawing from Asian cities (eg Bangkok) where the price of taxis was close to cost, and in other cities (eg Melbourne), where Uber's flouting of the existing law has lead to deregulation, Uber is just another brand in the market. The price of a normal taxi hailed on the street and an Uber (I took Uber to/taxi from the city the other day, non peak, non surge) was literally within 5%.

Uber's business plan under Kalanick was to create a monopoly and then raise rates. Now that Dara is CEO they're trying to legitimize themself, but it's going to be an uphill battle to say the least.

Uber's business plan under Kalanick was to flout the law and use VC money to subsidize until some future time when it would be a monopoly.

It assumed that the market would not react or it assumed that the VCs would keep funneling cash to keep it going.

Uber's business "model" always was unsustainable and the IPO and subsequent drop is entirely realistic as people realize that.

Uber Eats and some airy-fairy driverless vehicle models will not sustain it.

Currently Uber does not fund its vehicles, how does it think that the capital cost of running a driverless taxi fleet in a city will somehow be cheaper than the current cost of driver+car?

Uber doesn't have the capital to actually replace its current business model with one that is capital intensive and it will be eaten alive by existing fleet logistics and car manufacturers. It has no distinct advantage when operating a driverless fleet than Fedex or UPS or the equivalent operators.