For Sale: A License to Lose Money
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Today in Annals of the Free Market, a company losing money hand over fist with no remotely feasible plan for profitability is about to launch a $100 billion IPO:
The offering, which could value Uber at around $100 billion, is expected to reverberate through global financial markets and to solidify the company’s position as one of the most consequential technology firms of the past decade. The share sale would be the biggest since the Alibaba Group of China began trading on the New York Stock Exchange in 2014, and would peg Uber’s value at more than four times that of United Airlines’ parent and double that of FedEx.
But the prospectus renewed questions about how sustainable Uber’s business actually is. The company said in the filing that it lost $1.8 billion in 2018, excluding certain transactions, on revenue of $11.3 billion. And the prospectus also showed that its rocket-ship trajectory for revenue growth was beginning to slow.
Uber’s archrival in North America, Lyft, went public last month at a valuation of $24 billion. But Lyft, which is also deeply unprofitable, fell below its offering price in its second day of trading as investors questioned whether it could make money. This week, Pinterest, the digital pin board company that also is losing money, set a price range for its public offering that values it below that of its last private market peg.
I mean, I’m as happy to pocket the subsidies offered by venture capitalists as the next urban dweller. But the fundamental problems of Uber’s business model remain as ineluctable as ever. They haven’t solved the problem of offering prices low enough to get a lot of customers while paying drivers enough that they’ll be quickly available for prospective riders while making money. And the barriers to entry will remain low enough — and the ability of riders to use other modes of transportation if prices get too high present enough — that “drive your competitors out of business and jack up the prices” can’t actually work for the industry either. But wishful thinking can be one hell of a powerful drug.