A lot of movie productions infamously do not have positive cash flow. They deduct profits by creating artificial expenses charged by other companies providing services.
If they did have profits they’d get double taxed (once on the company’s profits and then again in payroll taxes if they decide to disburse profits to employees). They’d also have to pay out royalties on profits in some cases.
It’s usually pointless to look at reported profits from growth oriented startups, because if they reported income it means they are not properly reinvesting into growth (hiring engineers, bonuses for engineers, marketing, etc).
It’s much better to look at unit economics. Frankly, if cab companies made it work there’s no reason Uber cannot, and no reason the unit economics for Uber would be negative. It’s not as if Uber et al invented something new. They’ve basically improved almost every aspect of the taxi system it replaced, and done so with software technology so the marginal cost of the improvements is almost $0.
Just because the product is labor driven and low margin doesn’t mean it cannot be profitable. Amazon is a fundamentally low margin business as well (retail). The margins don’t matter so long as it can scale well, and software almost always does.
> A lot of movie productions infamously do not have positive cash flow.
This is a nuance of an accounting trick used specifically in Hollywood and isn't relevant to this discussion whatsoever.
> It’s usually pointless to look at reported profits from growth oriented startups
Uber isn't a startup anymore. It's a publicly traded company.
> It’s much better to look at unit economics.
It's not. Unit economics are commonly used to drive an overall cash flow / profitable capability of most startups because their profitability is usually highly irregular when they are subscale. Unit economics are usually a proxy / indicator of gross margin and gross margin is an indicator of operating cash flow and/or net income.
> Just because the product is labor driven and low margin doesn’t mean it cannot be profitable. Amazon is a fundamentally low margin business as well (retail). The margins don’t matter so long as it can scale well,
Generally true, but there's a few things here that are important to consider:
- In most recent years, Amazon has started driving overall profitability via AWS profits which far outsize their retail/ecomm profits.
- What you're referring to specifically is free cash flow. From Bezos: "“When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.” Jeff Bezos is very focused on this “absolute dollar free cash flow metric.” You will see many people talk about Amazon’s focus on “growth” vs. margins, but the right focus is instead absolute dollar fee cash flow."[0]
I don’t get it. Even publicly traded companies try to zero out end of year profits via reinvestment and salary bonuses. If you did not then you accumulate unused cash which if you decide to pay out to employees later gets double taxed.
But in any case Uber’s industries are still highly competitive (ride sharing and food delivery), so there are plenty of ways for them to reinvest profits rather than accumulate a war chest like a company like Apple (which also was able to do partly because of a tax haven country).
Plus if Uber didn’t reinvest profits their hundreds of competitors would do that and get an edge, many of which are smaller private startups
>A lot of movie productions infamously do not have positive cash flow.
You're confusing cash flow with declared income/loss. The shenanigans pulled on shows like "Columbo" and "The Rockford Files", resulted in high-quality, long-successful shows showing "losses" by the studio, are classic examples. Search on "Hollywood Accounting."
Corporations do the same thing via end of year bonuses and dividends. Those things are considered expenses too and can be used to offset income. If Uber is going to get taxed 20% on their excess income for the year or they can give out some bonuses to their employees, incentive bonuses to their drivers, and ramp up their marketing spend, what do you think they'll do?
You can't just declare 0 income. You have to actually spend it to declare 0 income.
If they did have profits they’d get double taxed (once on the company’s profits and then again in payroll taxes if they decide to disburse profits to employees). They’d also have to pay out royalties on profits in some cases.
It’s usually pointless to look at reported profits from growth oriented startups, because if they reported income it means they are not properly reinvesting into growth (hiring engineers, bonuses for engineers, marketing, etc).
It’s much better to look at unit economics. Frankly, if cab companies made it work there’s no reason Uber cannot, and no reason the unit economics for Uber would be negative. It’s not as if Uber et al invented something new. They’ve basically improved almost every aspect of the taxi system it replaced, and done so with software technology so the marginal cost of the improvements is almost $0.
Just because the product is labor driven and low margin doesn’t mean it cannot be profitable. Amazon is a fundamentally low margin business as well (retail). The margins don’t matter so long as it can scale well, and software almost always does.