The Story
Uber lost $2.8 billion last year. No, we’re not joking. This made them the largest-losing private company in the history of Silicon Valley. But is a loss always a bad thing? Apparently not. Here’s why:
1. They made serious $$$ from commission
Uber are saying ‘no sweat’ because they doubled their bookings in 2016 and made $6.5 billion net revenue. Say what? That’s the total amount of all commission paid to them when someone hops in a car or orders an Uber Eat.
2. And then they lost it…
This might sound like an oxymoron but it’s true. Here’s how: Uber’s strategy is to expand while they’re hot. They’re now in 75 countries with a whopping total of 40 million riders each month and they’re like ‘why stop here if we can achieve world domination’. They’re spending heavily on incentivising drivers, ride promotions and self-driving vehicles with the hope it will payoff in the future. So all this newness for the brand means some serious output of cash. It’s a strategy that’s often used in new business. You take a financial hit today on a promotion or project that can bring mega bucks in the future.
3. They’ve got big investors
Since their founding in 2009, Uber have raised $12 billion from investors (including Goldman Sachs, JP Morgan and Saudi Arabia) and have $7 billion of this cash left in the bank. So it’s ‘keep calm and carry on’ because they can afford a few years of losses before the bank account is empty.
4. Uber shares aren’t up for grabs (sorry!)
Unfortunately, it’s not possible to join the party yet because Uber is a private company so buying shares is not easy. There’s speculation that Uber will ‘go-public’ this year or next. Don’t know the difference between a private and public company? We have a guide for that.
MOXI Round-Up
Uber’s story is extreme but this is how many new companies - aka start-ups - operate, especially those in Silicon Valley. They attract investment so they have money to spend on expansion. At some point, the company have to show they are on a path to profit otherwise investors will dry-up, money in the bank will drain and the business will fail. But for those that do make it, they can make it big. Large private investors are happy to invest in many start-ups expecting most to fail and one to be hugely successful.
Related guide: Introduction to Buying Shares