- Uber lost more than $3 billion in 2018 — or an average of 58 cents on each of its 5.2 billion rides last year.
- It could be more than a decade before the ride-sharing company turns a profit.
- It's IPO this week could value the company at up to $90 billion, or roughly twice the market capitalization of Ford Motor Co.
Uber is expected to go public this week in an offering that could value the 10-year-old startup. Yet in the decade since its inception, the ride-sharing platform has not turned a profit — and the company admits in its IPO filings that profits may never happen at the end of the road for Main Street investors.
It's not unheard of for tech companies to lose money as they mature. Amazon first became profitable years after its initial public offering in May 1997. But it's unusual for a company of Uber's scale to still be losing so much money, experts say. Uber's IPO filing reports more than $3 billion in losses for 2018. That same year, Uber riders took 5.2 billion trips, losing the company an average of 58 cents per ride.
Public investors in Uber could have to wait years before seeing returns on their bets, particularly if Uber prioritizes growth over profitability in the near term. Even Uber itself acknowledges in an SEC filing that its route to profitability is uncertain.
"Many of our efforts to generate revenue are new and unproven, and any failure to adequately increase revenue or contain the related costs could prevent us from attaining or increasing profitability," the company said.
Patience is probably advisable for ordinary investors. After all, a value of $80 billion to $90 billion for Uber equals roughly twice the market capitalization of Ford Motor Co. It's also more than the combined market value of American, Southwest and United airlines.
Some analysts point to the example of Amazon under its founder Jeff Bezos, who also happens to be.
"More and more companies today are adopting the Amazon approach of focusing primarily on expanding their user base and bookings growth and expanding their revenue growth and going after new markets, but they also have to spend aggressively to the detriment of profitability," said Asad Hussain, emerging tech analyst at PitchBook Data.
"It's incredibly important if you invest in Uber that you take a long-term view. Public investors should understand that it costs a good amount of money to acquire new users and enter new markets and create incentives for drivers and riders to join the platform," Hussain said.
The company would do well to execute on that strategy, according to Arun Sundararajan, professor at NYU's Stern School of Business.
"One of the biggest mistakes Uber could make after going public would be to spend too much time managing short-term earnings and to try to become profitable too soon," Sundararajan said. "I think the right strategy would be to continue to lose money for at least five years as they make deeper inroads into the money that consumers spend on personal transportation," he said.
Sundararajan estimates that Uber and Lyft combined only claim about 1 percent of Americans' spending on transportation, with the rest going toward the purchase and maintenance of automobiles. To become profitable, Uber will need to make a hefty investment into changing the way consumers think about getting around.
"If Uber wants to be a trillion-dollar company, it will have to invest very heavily in that behavior change. They will have to move out of cities into suburbs, and convince people to give up their second and even primary cars. That's a slow, expensive process that involves investor patience," Sundararajan said.
He compared this tack to the strategy Bezos used to turn Amazon — an online bookseller in its earliest days — into one of the world's biggest technology companies.
"Bezos would constantly be not reporting good earnings but focusing on growth and expanding the set of categories that consumers felt comfortable buying on Amazon, so over the past 20 years he lost money to lay the foundation where more of what we spend on retail is spend through Amazon," he said.
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