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 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 a cash-printing machine:
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.
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