When Is Uber’s Loss Really A Profit?

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If you’re thinking about Uber’s IPO then there’s the one number that you want to find out. We’re going to leave the finding out of it as an exercise for the reader because we’re like that. It is, however, the one number that is important in this whole process.

For we can see that Uber’s losing money. We can also see that it’s lost a lot of money since conception. And there’s always the hope that it will make money at some point in the future. We’ve thus that mix of facts and hope to look at.

But what is it that underpins that hope? Well, it’s where are those losses coming from currently?

Uber continues to lose billions of dollars despite its significant growth to 91 million users and expansion into new businesses, the taxi app has revealed as it filed to go public in New York. Documents filed with US regulator the Securities and Exchange Commission show it made a small profit last year, but this was because of the sale of businesses in Asia. It made an operational loss of $3bn. Since it was founded the company has lost $7.9bn dollars in total, it said. Despite diversification it said its core business, providing car transportation to customers who can summon cabs using an app, still makes almost all of its money, with income of $9.2bn last year, up from $3.5bn in 2016. Its total revenue was $11.3bn. Customers travelled 26bn miles using the app last year. It said its rapid expansion into cities worldwide and new areas of business had led it to take on more losses.

That’s the big question. In that last line there.

Consider two different sets of numbers. Uber makes a loss on continuing operations. Uber makes a loss on only new operations. The distinction vastly changes the value of the firm.

To explain a little more. Uber’s been in New York City for some time now. Is it making a profit in NYC as yet? If it is then that’s evidence that the concept does indeed become profitable after some period of investment and some level of market penetration. Losses would then be coming from the investment necessary to create those fortunate conditions in new and other cities.

Our other option is that Uber is still making losses in NYC. Which would mean that there’s no obvious turning point for the concept itself. Expanding to more places, even making investments to do so, doesn’t lead to an eventually profitable segment of the business.

As above, this is an exercise for the reader. But that’s the important distinction that has to be made. Is Uber still making losses because it keeps expanding the business? Or is it that the underlying business model never does get to profit?