Uber's IPO Prospectus says it could never be profitable

Uber announced Thursday its intention to make public the announcement of the publication of a 300-page prospectus intended for potential investors. Shira Ovide, of Bloomberg, has described it as "the most complex S-1 I've ever read."

Among the revelations contained in this tome, there were details of the love-hate relationship between Uber and his former CEO, Travis Kalanick, revelations about who will become wealthy when Uber rejoins Wall Street, a glimpse of his battle to keep drivers as subcontractors rather than employees, and information about his relationship with Google.

But in the pages of the prospectus was a surprising recognition: Uber said that it could never be profitable. "We expect our operating expenses to increase significantly in the near future, and we may not be able to achieve profitability," said the repurchase company, which reported a drop in revenue in the near future. operating $ 3 billion last year.

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The document then lists a litany of risk factors. These include his huge expenses on items such as drivers, his "unproven" revenue lines, the danger of unrealized cost savings from his acquisition of Careem, as well as the fact that he was unable to do so. Uber Eats (Uber's food distribution company) records a loss on some of its partnerships. with big chains like McDonald's.

"We will need to generate and maintain increased revenues and reduce proportional expenses in future periods to achieve profitability in many of our largest markets, including the US Even though we do so, we may not be able to able to maintain or increase profitability, "Uber said.

A scary reminder of the crash of the Internet bubble

The recognition, although perhaps not what investors want to see, is far from unusual in the current market for initial public offerings. Lyft's S-1 contained very similar wording – "we have a history of net losses and we may not be able to achieve or maintain profitability in the future" – while Snap also stated that it " could never achieve or maintain profitability "when it will be made public in 2017. Two years later, Snap is still in the red.

According to a study by Florida University Finance professor Jay Ritter – well illustrated here in Recode -, 81% of US companies were considered loss-making entities last year. The graph below, produced by Ritter, shows the percentage of IPOs with negative earnings per share since 1980.

For technology companies, it was even higher at 84%, largely thanks to biotech companies that raised funds. In fact, the last time a large percentage of high-tech companies were made public without earning money was in 1999 and 2000, when 86% of Internet companies using Wall Street were not profitable.

The turning point of the millennium was of course the bursting of the Internet bubble, which led to the deaths of companies like Pets.com, Kozmo.com and the loss of about 200,000 jobs in Silicon Valley.

Uber is expected to be the biggest IPO in 2019, forecasting a value of about $ 100 billion. That being said, it will likely serve as a yardstick for measuring the planned IPO bonanza for this year, in which companies such as Pinterest and Airbnb should also go public. It can also be the canary in the coal mine if things go wrong.

Uber has been honest about his profit potential, but he does not need to look far to find an example of success. Amazon was the unprofitable prince when he arrived on Wall Street in 1997, with Quartz pointing out that he had lost $ 2.8 billion in the first 17 quarters following his IPO. Today, Amazon earns over $ 3 billion a quarter – as much money as Uber lost all last year.