Investors who dumped Uber stock last week are idiots: Here's what's really going on.
- Uber stock took an 8% dip last week.
- CEO Dara Khosrowshahi complained that people are still asking, "can Uber ever be profitable?"
- Uber didn't "lose" $5.2 billion in Q2, as the headlines suggested.
- In fact, it added $5.3 billion in cash. Uber's cash on hand went up to $11.7 billion.
- The "loss" was a non-cash technicality, not an actual loss of cash.
- The company makes money hand over fist.
- Investors may have misunderstood Uber because of its sheer size. It's actually behaving like an early-stage tech startup - albeit on a vast scale - by investing in its own growth using expenses it can rein in later.
Uber stock dipped 8% last week after the company recorded a larger than expected net loss, of $5.2 billion. It added to the impression that Uber is simply burning cash, subsidising cheap taxi rides to grab market share, with no real idea of how to turn itself into a sustainable, profitable business.
"I think that there's a meme around which is, can Uber ever be profitable? I certainly heard that meme along with others," CEO Dara Khosrowshahi told analysts on the earnings call last week.
In fact, Uber didn't lose any money at all. It is more likely the case that some investors misunderstood the nature of the loss: It was a paper write-off, not an actual loss of cash.
In fact, Uber grew its cash on hand by $5.3 billion in Q2, from $6.4 billion at the end of last year, to $11.7 billion by the end of Q2.
The "loss" was mostly a non-cash stock-based compensation expense of $3.9 billion. Issuing stock compensation to employees costs the company next to nothing; accounting rules require it to be written up as an expense only so that investors have an accurate idea of the value of newly issued stock being given out as compensation. No money actually leaves Uber's coffers.
Take a look at Uber's cashflow statement: The net loss from operations was just $1.6 billion. That's a lot of money but it's not $5 billion! Uber could easily afford that loss because it took in about $8 billion from the proceeds of its IPO, the cashflow statement says.
In other words, this company isn't losing money. It's the opposite. It's gathering in enormous sums*:
- Gross bookings were up 31% to nearly $16 billion.
- Revenue was up 14% to $3.2 billion.
- Riders increased 30% to 99 million.
It's difficult to look at those numbers and conclude that Uber is dysfunctional.
Uber did increase its various operational expenses, such as marketing, R&D, and salaries & admin costs. But those are all costs that Uber can control, and cut in the future if need be. For now, the company is investing in its own growth.
In other words, this company is still behaving like an "early stage" tech startup - albeit on a vast scale.
This company has a LONG way to go before it tops out. (Think about Facebook when it reached 1 billion people and everyone thought Facebook would slow down.) Investors are idiots for selling their stock right now.
*Clarification: This story originally described Uber as "a cash-printing machine." That phrasing was intended as a rhetorical device but some readers took it a bit too seriously. So we changed the wording to "gathering in enormous sums."
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