How often do you catch yourself thinking, “How can << thing >> cost this much?!?!”
We hate growth when we buy << things >>.
We love growth when we buy stocks.
Let’s look at not-a-taxi company, Uber.
Taxi? Nope. They reimage the way the world moves for the better. Really.
I’m fairly certain that line was crafted by a committee of environmentalist hippies around a drum circle just back from a peyote-infused vision quest. Then, rewritten by AI while chatting with a Stanford MBA class for a class project. On the plus side, it got a 2.4 on the Flesch-Kincaid grade scale. So, nicely done.
Like Snap is my camera (what?), vague platitudes put our head in the clouds and release us from worldly expectations. Like making money.
Me? I sell ads. If I don’t sell enough, I don’t eat.
In 2017, you might pay Uber $15 to take you three miles in NYC. That’s before tips and surge pricing. Or, around the same price as yellow cab.
How much does Uber charge for a 3-mile trip in NYC now? $30? $40? $50?
None of the abobve. Today, that drive costs you $59.61 plus, plus. Or, about $17/mile.
How in blazes did Uber raise prices 4x in less than six years!?!?!
Well, an Uber is not a taxi. It’s a verb. Great brands are verbs. Like Google.
It took them 14 years to addict us. Why raise my arm for a (pfft) taxi to sit in cramped space behind a plexiglass partition to pay an unknown fare when I could use my phone to fetch me a driver who I can rate and pay a known fare? No contest. Apps win. Behavior changed. Habits formed. Nouns become verbs.
So we pay more – sometimes a lot more to Uber (the verb) than get a cab. Even though, we pay them less, cabs makes money.
So, can a company that can – and does – charge us a bunch and doesn’t have those annoying expenses like buying cars can lose money?
Yep. Q1 2023, Uber lost money on 2.1B rides. How does a company doing nearly 23 million rides per day LOSE MONEY? Strategy.
There’s a reason Uber didn’t make money for 13 years. They didn’t want to.
You can’t just lose money forever — by accident. Not wanting to make money is strategic. Uber has 27 people on it’s board. Smart, rich people who like money and get paid about half-a-mil each.
Value is boring, and smelly, and cramped. You have to do math. How much did Co. make this quarter? Will they add 2.3% next quarter or is it more like 2.4%? How do I discount what they’ll earn in 2027?
Growth is sexy. “I’m the CEO of Cool Corp. This year we flew like a trillion people around in our hover cars. In some future time period, we’re going to have robots fly them. Forget Gen AI, we connect our purpose-built Build AI to a 3D printer. It will churn out millions of our proprietry uber-lofts that run on rarified Aire(TM) — which is plant-based air.”
If this were an 80s movie, the dorky version of Ronald Miller would ask, “Will you make money… then?” A room of cool investors would laugh condescendingly.
Don’t laugh. We(UsedToGoToAnOfficeTo)Work put out this laughable chart. At the time, rich, smart investors valued We-Wenting office spaces at $47B. They even bought into the notion that profits would come in the no X axis, “Future.”
Now, Uber **WANTS** to make money. Maybe it’s because investors aren’t as willing to fund my rides any more. Sigh.
Can they? Yes.
Miraculous? No.
It’s like what Tom Hanks said about going to the Moon in Apolllo 13. “It’s not a miracle. We just decided to go.”
11 days ago, Uber told us they made money.
All they had to do was:
1/ Drive 2.2b people around (in three months)
2/ Generate a record $32b in billings (again, in three months)
3/ Up the price of a 3-mile trip through NYC to $51.69 (plus tip)
4/ Want to make 3% profits (before tax) on $9B in revenue.
So, glee, right? Happy investors. Stock jumping higher? Nope.
Uber stock was down about 10% that day. It’s been down every day since. They went from driving sexy growth to delivering boring value.
Like Tom Hanks also said in Apollo 13, “We’ve made going to the Moon boring.” [Ok, he said, “Routine.” Let it go.]
The strategy to not lose money is hard. Ask Spotify. Or just about every streaming company. Or gobs of now-public-soon-not-to-be “DTC brands.”
So hard that I’ll quote Uber CEO Dara Khosrowshahi. “When Uber reaches profitability, I’ll still find reasons why it sucks… to motivate our team.” He gets $24m a year to find reasons Uber sucks.
Rarified Aire(TM) indeed.