The Uber share dipped 8% last week after the company suffered a larger than expected loss of $ 5.2 billion. It gave the impression that Uber was simply burning cash, subsidizing cheap taxi rides to gain market share, with no real idea of how to turn into a sustainable and profitable business.
"I think there's a meme around it. Can Uber ever be profitable? I've certainly heard it meme with others," CEO Dara Khosrowshahi told analysts at revenue talks last week.
Uber didn't actually lose any money at all. Some investors are more likely to misunderstand the nature of the loss: it was a write-off, not a real loss of cash.
Uber actually grew its cash on hand by $ 5.3 billion in the second quarter, from $ 6.4 billion at the end of last year, to $ 1
The "loss" was largely a non-cash stock-based compensation cost of $ 3.9 billion. Issuing stock compensation to employees costs the company almost nothing; Accounting rules require that it be written off as an expense only so that investors have an accurate idea of the value of newly issued shares being issued as compensation. No money actually leaves Uber's coffins.
Take a look at Uber's cash flow statement: Net operating loss was only $ 1.6 billion. It'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 the IPO, the cash flow statement states.
In other words, this company does not lose. It's the opposite. It is a cash printing machine:
- Gross bookings increased by 31% to almost $ 16 billion.
- Revenue increased by 14% to $ 3.2 billion.
- The riders increased 30% to 99 million.
It's hard to look at these numbers and conclude that Uber is dysfunctional.
Uber increased its various operating expenses, such as marketing, R&D and payroll and administrative expenses. But there are all costs that Uber can control, cutting in the future if needed. The company is currently investing in its own growth.
In other words, this company still behaves as a "early stage" technical startup – albeit on a large scale.
This company has a LONG way to go before it peaks. (Think of Facebook when it reached 1 billion people, and everyone thought Facebook would slow down.) Investors are idiots for selling their stock right now.