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This is a subtle and often-missed point. In the markets where they are trying to acquire customers and become dominant, the "Uber-for-X" businesses have negativ
by tompccs 6y ago
This is a subtle and often-missed point. In the markets where they are trying to acquire customers and become dominant, the "Uber-for-X" businesses have negative gross margins. But they will have surely demonstrated (or the investors really are fools) that, once they have saturated a particular market (ie, a region or city) they are unit profitable. The bottom line looks bad because these companies are growing so fast that their balance sheet is dominated by the markets they're aggressively trying to corner, which wipes out the profits from the markets they have already won and proven viable.
- gowld 6y agoIt depends if you are Amazon or if you are Uber, doesn't it?
- TheOtherHobbes 6y ago2000 and 2008 proved conclusively that investors are never fools.
- ponker 6y agoThese companies often assume that they can spend money to acquire customers but that those customers will stay loyal when the money hose turns off. If you have a fucking amazing product and spent the money to get people over the activation energy of trying it, that’s true. But a lot of these customers came to you for the bargain and flee as soon as the bargain dries up.
- krrrh 6y agoOr competition appears in your most profitable locales and skims off the most profitable end of the market, like Juno in Manhattan, offering slightly higher payouts to the top-rated Uber drivers, and a slightly better service to the top customers. And they don't have to try to make up the costs of overcoming legal hurdles and creating the market.
- lordnacho 6y agoThis sounds right but it's not trivial to show that one piece of the business is profitable. Accounting isn't that simple, and to a degree the investors simply have to believe the story. I'm not saying you can't have an amazon type situation where indeed profits are sunk into new investment, but surely not every firm claiming this is actually doing this.
- causehealth101 6y agoYeah, this question has always stumped me. High-growth companies that are not showing a profit are getting their reputations hammered. But I can't discern which of these are doing this to their peril and which are effectively following the Amazon story and will come out of this successful.