You might call me a traditionalist. I believe that organizations need to turn a profit to survive. Yes, it’s true that outside funding can support companies or non-profits for some period of time. But forever? Unless long-term the organization generates more cash than it spends, the lifespan of it will be short, at best. Reminded by covering a Logical Reasoning course this past weekend, perhaps you could phrase it the following way:
Organizations will die unless they operate as a profitable enterprise.
Profitable enterprises are those whose inflows of cash exceed the outflows of cash on a long-term horizon.
Organizations will die unless the inflows of cash exceed the outflows of cash on a long-term horizon.
Boy - after reading the Uber S-1 (the regulatory document companies file before ‘going public’ or listing on the stock market), don’t I feel like a sucker. Let me give you a quick summary of Uber’s position:
We don’t make money.
It’s very possible we will NEVER make money.
Currently, we lose one dollar for every ten in revenue.
In the future, we plan to pay our drivers less than we do now. In that case we might make money.
Or we can transition to autonomous vehicles. In that case we might make money.
But really, our business model is to monopolize markets to reduce competition and pay drivers less and less (but at that point they won’t have other options). In this way, it’s possible we make money. But it’s also possible we won’t.
Please buy our stock?
I understand that probably came across as a bit of a polemic, but I just can’t help feeling that I’m not the crazy one here.
My haters are going to say Uber was profitable last year. Technically that’s true, but it’s only because they divested the Southeast Asian and Russian businesses. Operating cash flow still shows the company in the red.
You’ll read about wild growth from 3.8BB in 2016 revenue to 11.2BB in 2018 revenue. Technically that’s true, but losses are growing. Margins are declining. Average trips per month per user remain flat. By no means am I making a short sell recommendation on the stock. Markets do wild things.
Don’t take this as any sophisticated form of financial analysis, just a truly head-scratching first read of their public listing documents. Last week and this week, I just can’t shake this one out of my head. It’s definitely been “on my mind."
Mark Twain once wrote: "It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
I’m pretty darn sure that "Organizations will die unless the inflows of cash exceed the outflows of cash on a long-term horizon.”
Sure seems like we’re entering an era of post-profitability business by the number of companies that are filing for public listings without reaching profitability. Education companies are China are racing for this very same finish line, with VIPKID in the front. Who needs to post a profit when you can persuade investors to hold the bag?