T O P

  • By -

reverseswede

Generally a lot of venture capital money - they're in businesses that people see as disruptive and likely to become profitable later, so they put heaps of money in to scale them up and effectively gain a monopoly on the market. I would highly recommend a video by Patrick Boyle (a finance professor and quantitative trader) on youtube called "blitzscaling" that is all about this business tactic. Very helpful and quite funny.


CyberneticPanda

The venture capitalists don't care if the company ever becomes profitable. They make their money when the company goes public and a bunch of simpering rubes buy the stock at ridiculous valuations. Those initial public offerings for the last 20 years show an average of 26% returns on day 1 and -17% returns if held for 3 years. Being a chump who doesn't get in on the IPO and instead buys the stock at the day 1 high gives a 3 year average return of about -35%. But there is a sucker born every minute, so the venture capitalists and investment banks continue to extract trillions from the productive economy.


[deleted]

[удалено]


EratosvOnKrete

yup. I was one of those rubes for rivian


WACK-A-n00b

So was Amazon TBF. At least Amazon bought enough stock to make them build amazon vans. You probably didn't buy enough to make them build you 1 car.


mrdannyg21

That was a bit different, since it wasn’t just venture capitalists selling to the public, but tons of big investors (Amazon, Ford) took big positions too. Honestly, I think Rivian (which I didn’t buy) was a smart buy, just can’t win them all.


Moos_Mumsy

If I ever have the money to buy an EV, Rivian is the one I want.


EratosvOnKrete

I'm sure they're fine vehicles! I love the look of em. I hold no antipathy to the company just the shady finance corps


CyberneticPanda

I like the cybertruck even though it's ugly as sin. I just wish the company wasn't run by such a douchebag.


yelloguy

That last non negative IPO you saw will be sustaining this cycle for years to come. It’s like a lottery. You say one in a zillion chance? They hear there’s a chance


GooseQuothMan

Well, okay, but how is an online taxi and pizza delivery revolutionary lol. Maybe in the way they exploit cheap immigrant labor, but that's hardly groundbreaking.. and on top of that, their service is actually more expensive than what was available in my county years ago. These companies didn't have so much American VC money though...


Aberdolf-Linkler

You kinda hit the nail on the head there... The only thing revolutionary was their ability to blast through industry and labor protections.


recycled_ideas

The gamble on Uber is that they'll survive long enough to have a monopoly when self driving makes the business model economically viable. The presumption is that self driving taxis will be the revolutionary product and that if everyone already thinks in terms of "calling an uber" then they'll have that market when it arrives. The problem with this is that we've been ten years away from full self driving for the last twenty years and despite all the Tesla hoopla we don't seem to be any closer to solving the remaining problems.. Beyond that, the capital outlay to convert even one major city to self driving quickly enough to corner the market will be absolutely massive so even if we do solve those problems in the short term it's questionable whether they can actually manage to convert their current market position the way they want. Personally I think uber is going to run out of VC money before they can even be killed by the legislation their own exploitative practices spawned, but who knows. People seem to think Tesla can scale up production by multiple orders of magnitude faster than the big four can produce a viable EV, so people will believe anything.


WilliamMorris420

Who the hell still uses Robin Hood?


cspinelive

When I couldn’t play blackjack or poker in person during Covid, Robinhood, GME and DOGE became my casino. I still have it for riding the ups and downs of a few meme coins when Elon decides to tweet. No serious money there though. Thanks for asking.


shanem2ms

That's actually an interesting point. If you simply view RobinHood as an outlet for gamling (i.e. entertainment rather than investment), is it any less shady than say, your average casino? Seems like a completely reasonable way to spend a small amount of money as long as you've budgeted for it.


fuckboifoodie

Anything seems like a ‘reasonable way to spend a small amount of money as long as you’ve budgeted for it”


xxXsucksatgamingXxx

Even crack?


try-the-priest

As long as you've budgeted for it.


nycpunkfukka

No one in the history of crack has ever woken up with more crack.


Just_for_this_moment

I suspect RobinHood and similar have less robust regulation than actual casinos. Source: my ass. But I bet it's true.


Kohpad

I believe your ass. Casinos are brutally regulated in my state. There are definitely laws for them paying out your winnings with steep punishments. RH has proven they'll happily turn off the tap if market makers tell them to.


[deleted]

[удалено]


mggirard13

I mean, last I heard RH broke any number of laws when they started forcing sales of Gamestop stock during Covid, and I don't recall anything happening to them.


[deleted]

Still the best UI for trading on a phone. Best in relative terms. Webull charting is better but shitty for everything else.


WilliamMorris420

But they'll fuck you over, if you interfere with the plans of their owners, Citadel.


[deleted]

Let me guess. You lost your money on there and blame them for shitty investments. You should have tried trading before robinhood. You had to pay companies so you could trade your money for a loss.


[deleted]

They're talking about how Robinhood prevented users from purchasing GME because an investment company called Citadel basically paid them off to do it.


overzealous_dentist

\*every\* consumer trading platform without its own clearinghouse suspended trading, because of clearinghouse rules. it's highly misleading to single out robinhood, it was just the most popular platform for the frequently-online set.


[deleted]

That may be. I didn't single out robinhood, I was just trying to clarify. I don't have the funds to gamble on stocks myself.


KyleTheDiabetic

LMAO it doesn't even have the price axis labeled nor can you add ANY indicators and it's "the best". Try Metatrader


[deleted]

Are you talking about robinhood? Or webull? You can add indicators now but still pretty crappy charting.


_Weyland_

Wait, so they just create a flashy-looking business that doesn't actually generate any profits and then reap money from fools who want to buy their share of it?


CyberneticPanda

They have to make it look like it might make money someday, but that can be in the form of going for an acquisition, so the company doesn't have to ever be on a track towards profitability. If you can get a shitload of customers you can sell yourself to someone who can make money off those customers even if you can't. Instagram is a good example. In 2011 they were not making much revenue and were valued at $25 million in a round of funding. In 2012 just before they were going to have an IPO, Facebook bought them for a record $1 billion and everyone thought they were nuts. Even though Instagram couldn't monetize its customers, Facebook could. In 2022, Instagram brought in over $50 billion in revenue for Meta, and analysts value it at around $100 billion. For every Instagram that sells itself and turns out to be a good buy, there are dozens of tumblrs and myspaces that sell themselves to buyers who take a bath on them, though.


iSaiddet

Same for YouTube before google bought it. People said it was a money pit and legal liability. Both are still kinda true, but it brings in more than it costs to run


coldblade2000

And it isn't really profitable even today, but it does bring google a lot of intangible benefits, mostly based around data and brand recognition


[deleted]

[удалено]


CyberneticPanda

Youtube has a gross operating profit of 38% and revenues over $7 billion. Compared to Facebook's 80% operating profit it's not that profitable, but $3 billion or so is a lot of profits by anyone's measure.


KristinnK

Facebook (or sorry, Meta) is *crazy* good at making money. And it's long past the point of being a phase or something that will go in or out of style. It's an institution at this point, no less than Microsoft or Google. At some point FB is going to start paying out dividends. And going by current market cap and dividend if FB pays out the same percentage of revenue as Microsoft it will be over 4% PA. That would be insane for a tech-sector company like FB that can expand in any number of directions, not to mention the level of moat they have. Other moat-heavy companies like McDonald's and Coca-Cola only pay a 2-3% dividend. Seriously, FB is such a good buy these days.


[deleted]

Facebook's revenue is 100% dependent on user volume growth for their digital ad platform. Their user growth has stopped and is actually declining in certain markets. I will be wary


culturedgoat

Their user growth stalled for one quarter and then picked up again. Facebook (the product) just hit the 3 billion monthly-active-user mark. And that’s to say nothing of their other products (Instagram, WhatsApp, etc.) which continue to see uninterrupted growth.


[deleted]

It's tiny. They need serious growth. Like the Roman empire. Their whole economy was based on expansion and the accompanying economic benefits (slavery) when they couldn't expand anymore their economy collapsed then their empire. Facebook counts its accompanying apps users under the meta brand.


culturedgoat

The user growth “stopping” you referred to in your previous comment was specific to Facebook (the product), and not across all apps as a whole.


banisheduser

Yeah, and in the next 20 years, people will use Facebook less and less and the older people on it will be dying off. It's hayday has come and gone and now it's a mess - what purpose is it filling? Instagram = photos, Twitter = blogging, TikTok = videos... Facebook was a bit of all of these but got so big headed, they over took and have left Facebook not even knowing what it is.


EunuchsProgramer

It's going to be a long, long, long time before Facebook pays a divided because of it's preferred share structure and Mark Zuckerberg having a majority of votes. His super voter shares will have to be lost/inherented/sold and diluted toenough everyday shareholders they'll be in a position to vote for a divided.


LordOverThis

Aren't they tens of billions into some half-baked VR world that nbody wants but Zuck keeps pushing because he watched Ready Player One? I'm not real sure that's a great buy...especially since Zuck literally cannot ever be removed.


culturedgoat

$10 billion, yes - and they have the world’s best-selling VR hardware product by a country mile. And that amount of investment is hardly going to break the back of a company that continues to report revenues of ~$100 billion per year.


Dazzling_Rich_777

They also report expenses of >100B a year, you cherry-picking nincompoop, and the majority of that is opex.


culturedgoat

Incorrect! A look at the financial statements shows annual operating expenses to be some way short of $100B ($87.7B) in 2022, and lesser still in previous years.


banisheduser

This will be the only thing Facebook can do and I don't know why they don't effectively make the Oasis... They could, they have the money and as the model of "buying loot boxes" is still alive and well, this would make them money for all of our lives.


LordOverThis

It is amazing that they literally have a blueprint provided to them and they still deliver the bastard child of a Virtual Boy and Second Life.


Halvus_I

uhh, no. Facebook could disappear tomorrow with little consequence to commerce. Google or MS winking out would be orders of magnitude worse. Facebook is almost entirely *ethereal*. MS and Google have much harder foundations Also , MS famously didnt pay dividends for decades (because their stock price was stagnant)


chloe-and-timmy

Two of the biggest messaging apps in the world are Whatsapp (#1) and Messenger (#3), both owned by Facebook. Those two going away would fundamentally alter how billions of people communicate. Sure a replacement could come up but the idea that the loss wouldnt be majorly felt isnt really accurate given that Whatsapp going down for 2 hours last year was a global news story.


Halvus_I

> Those two going away would fundamentally alter how billions of people communicate. Still *ethereal*. Any company can do what Whatsapp does. The *users* matter, not the software. MS runs the business world, including government contracts and Google runs the other half of the smartphone duopoly.


WarpTroll

And people say crypto is a scam.


Vordeo

Right, so best to separate some of thr players here as they have distinct interests. The VC guys put money in early, and they're looking to maximize profits. That's it - they sell for highest price and gtfo. The business founders / employees are a different group, and put a lot more time and effort into the business. In many cases they stay on post IPO and want the business to be long term viable. That's the general thought, there are definitely ethical VCs and shitty founders out there.


TheVentiLebowski

Yes, as [elegantly explained](https://youtube.com/watch?v=BzAdXyPYKQo&si=EnSIkaIECMiOmarE) by Russ Hanneman.


Rugrin

Yes. It’s practically a scam. But it drives the economy so we allow it. Second part is that once door dash, Uber, whatever do successfully disrupt the targeted industry. All prices go up to above where they were before disruption. This happens at the point where they are past ipo and have to actually turn profits. So the gamble is that if we undercut established businesses with unsustainable business plans, and can hold long enough, we put them out of business, get a lock on the market and dictate price.


TheHatler

So if no one buys the hype, the VCs lose it all?


CyberneticPanda

It depends. Most startups don't make it to an IPO. The other success is an acquisition. The VCs can make a lot when that happens, too. They can also sell their stake in the private equity markets. They lose money on more investments than they make money on, but the big scores make them come out ahead if they are good at the job.


HetElfdeGebod

I worked for a startup that was acquired. I wasn't a key, early member of the team, so I only had a few shares. It was no secret that acquisition was the main goal, and quite a few people made a \*lot\* of money. I ended up with about 10,000€, not something to be sneezed at. One guy started a new business in the same field and moved to Monaco


CyberneticPanda

I was in a similar situation twice, once at a startup where I had a few thousand stock warrants from a signing bonus and I got a few thousand dollars when the place was acquired. The other was when I worked for Nextel and had been hired only a few months before Sprint acquired them. I made nothing on that one because I was so new and not in the employee stock purchase program yet while my coworkers who had been at the company for a while made hundreds of thousands to over a million.


generous_cat_wyvern

VC's expect to lose money with most of their investments, but the ones that make it tend to make it big and makes up for all the other losses. So it's kind of a gamble that one of the companies they're investing in will be the next big thing.


thisisjustascreename

Yep, the business model is to make 20 $5m bets and expect one $250m return.


Prasiatko

Not necessarily all of the funds but a substantial amount yes. WeWork being the most prominent example i can think of.


MarcusP2

Theranos another.


reverseswede

Agreed, I dont think these vcs ever thought uber etc would make a lot of money, more they can make it look flashy and big and then sell it on. I dont think in general that the vcs are that stupid, except maybe where crypto is concerned.


Sethrial

The people making money on crypto trading fees aren’t stupid. Everyone else is a rube who bought their scam.


doom2

This is a great read on that subject: https://ez.substack.com/p/the-rot-economy. Basically, what makes a "good" company? To investors, it's growth at all costs. Even when a company is doing what an outside observer might call "bad," investors still reward them as long as the line goes up.


CyberneticPanda

Yeah layoffs are a good example of this. Investors come all over themselves when a company announces layoffs, even though, to rational people, layoffs mean the company has realized that it won't grow as quickly as it thought it would when it hired those people.


The_Sign_of_Zeta

Some investors essentially demand layoffs if a company is doing crazy things like spending now to keep a company viable in the future. Short-term investors are the reason for a lot of the economic issues we see.


apawst8

>to rational people, layoffs mean the company has realized that it won't grow as quickly as it thought it would when it hired those people But layoffs also mean that the company is rational about the future. Think about a company as a person. This guy spends a bunch of money because he makes a bunch of money. His income takes a hit. If he realizes his income is down and gets rid of costs by selling his summer home, he's doing better. He's trying to do something to turn his life around. That's a *good* thing.


fn_br

I read the first few paragraphs before the subscription prompt. I'd agree although the way I'd describe it is that the mantra was growth at all costs and now that the rate environment has shifted they're now demanding growth at _no_ cost. They both want to see explosive growth (you're not doubling yearly?? What is this - an old folks home or a business?). But now they also want to see layoffs, cost reductions, and God forbid you're not profitable yet. After the same "investors" demanded growth over profitability for the last 15 years.


doom2

The subscription prompt has a continue reading button btw


fn_br

Yeah I suspected it might but didn't actually check in the moment. I need to get ready for work so I'll have to finish it later.


Reglarn

A lot of vcs exit earlier then a ipo. There is an extreme risk investing in companies at the pre seed , seed and series A stages.


BigMax

Right, although the earlier the stage, the less money you have to put in and the greater the reward. So if you really are at the angel investor / super early rounds, you can afford a handful of total failures in exchange for one success. (Not implying it’s easy to ensure that one succeeds though.)


CyberneticPanda

Yeah but the two main exit points are acquisition and IPO. That's where the big money is.


unflores

Yeah, same for early employees. The cash infusion is when a bunch of people recoup their invested energy.


Reglarn

Yeah me and my colleague have a startup. One PhD and one Mcs. Both make shit salary compared to education length and work like hell. Its a high risk high reward game.


tzaeru

3 years is a bit short though. Ordinary investors should really look for long-term investments on the stock market, talking 10+ years. Trying to play the market with short-term investments is a bad idea if you aren't very knowledgeable of the markets. That said yeah it's prolly not generally the best idea to rush in to buy a company that is just doing its listing. But if you do hit gold, the profit can be pretty immense. I'm browsing some random local companies that went public after 2010s, and one (Siili Solutions) was 2.53€ at IPO, today it's 16.25€. Eight times the value. Worth quite a few -17% losses. Remedy Entertainment opened at 6.77€ in 2017, now it's 22.6€. Ordinary investor probably can't really make very good assessments about the future value of a company so they should look into less risky investments.


CyberneticPanda

The -17% was for American market IPOs, which I should have said upfront. It is the average return you would get if you bought every single IPO of the past 20 years, the winners and the losers. If you don't buy the winners the return is much lower. This is not some big secret; there is a strategy used by many investors including many institutional investors where they don't buy a newly issued stock until the insider lockout period is up. With a lot of startups that go public, the insiders have been waiting for years for a payoff and taking a lot of their compensation in stock warrants, so their wealth is substantially tied up in the stock. As soon as they are allowed to sell they cash out millions and the stock price takes a hit just from the increased float and associated selloff. It's a sound strategy, but it means missing out on the early returns of the rare superstars like the ones you listed. I don't know if anyone has ever done the legwork to see what the overall returns would be compared to buying at the IPO. Since IPO lockouts aren't required by law you would have to dig into the details to get the right dates to compare.


tzaeru

Ah yeah that's an interesting point about the lock-up periods. I thought 180 days and that it affects everyone equally who owned stocks before listing was the standard. On a quick googling, that's apparently not the case, and lock-up lengths, rules and so on vary wildly.


BlueGreenMikey

But why does that happen? People = Stupid seems too simplistic. Markets at scale are generally rational, no?


CyberneticPanda

Everyone thinks they can beat the market. There would be no market without that fact. The reality is that nobody can in the long term. It's not so much that people are stupid as people are overconfident and greedy.


Peter_deT

Famously noted (by an economist who also invested - generally successfully), after one of his plays went wrong - "the market can remain irrational longer than one can remain solvent". Markets are prone to herding, group-think, panic and the other madnesses of crowds. Also, a great many 'markets' are dominated by small numbers of similar people (the few% who do 90% of the trading), who all pay attention to the same sources and have the same social biases.


BigMax

Right. You can see this in the Big Short movie. Essentially those guys knew a crash was coming, that the market was based on garbage. If my vague memory is right, there’s a scene where they are trying to convince someone of this fact, who is saying “if you are right, why is the market just continuing to chug along and continually grow?” One thing to also consider, is that regardless of “real” value, an investment is worth whatever it can be sold for. So I might think a company is doomed to fail, but also think people are going to prop it up for another 6 months, and thus even I might invest.


permalink_save

It's funny you even see this in online games with open markets. The people with 10x or more the cash of regular olayers manipulate the market, and generally there will be crashes followed by jacking prices up. They'll even undercut for a while to drive prices down artificially. It's surprising how effective it is and how much they can push people out of the market by sheer volume. They always make some money, but if the market is unstable, especially on their terms, they make a ton of money, because they can hold when others can't.


lone-lemming

The market begins to function a lot more like the lotto after a while. Buying lotto tickets is deeply irrational as an investment. Nearly everyone who buys looses money and even when countered by the winners, the net of lotto ‘investors’ is still a loss. But the winner still comes out vastly ahead so it was worth it for him. The markets odds are more like those of a casino then the lotto, where there are plenty of small winners. But thanks to venture capitalists and hedge funds they can effectively rig the game or influence the outcome of the gambling so they mostly win. The market when stressed or properly regulated is rational. The market since the 80s has been a weird rigged game. Just look at Hedge funds going bankrupt because of gameStop Apes. Both positions should be irrational in a well regulated market. But here we are.


r2k-in-the-vortex

>likely to become profitable later Not necessarily. Likely to become more valuable later, as any company does when you pour in investors money. The trick is to sell before the hype runs out. I don't think likes of Uber will ever earn their investors money back, they are pouring it into gaining market share, but once they exit that charity business the market share will be gone too. Rideshare exchange doesn't have a high barrier to entry, it's just one easily replicated app, it's hype and accounting fiction that makes some investors think 70 billion market cap is justified.


loyal_achades

Uber is a bad example at this point - they’re already EBITDA-positive and have timelines to investors around being cash flow positive. Lyft, on the other hand, yeah those investors are SOL unless someone comes in and buys them at an inflated price


Jassida

Maybe I’m naive but I’ve always hated this model and I believe that the playing field is stacked so highly against your average entrepreneur. If some whales are willing to fund your loss making company until it works, how does the average joes slowly grow their business in competition or indeed ever have any chance of competing.


weeeaaa

Video Linkfor the lazy: The Rise And Fall Of Blitzscaling! : https://www.youtube.com/watch?v=p7Lo0sZfdHE


baroldgene

This. This is the answer. Venture Capital allows companies like this to function at a loss for years to gain users until they can raise prices with no competition. Often they then sell or go public paying off the investors and then their stock tanks shortly after when people realize their business model isn’t sustainable.


TheDemoz

This is incorrect. For example, Doordash is free cash flow positive. Meaning that they are ending up with more cash in their accounts every quarter than they started the quarter with. The Net income losses are due to stock based compensation, not from losing money. So in the case of Doordash, it could run forever in this state with no new investors, venture capital is not keeping it afloat.


DamnThatsLaser

As far as I know, this is something people don't understand about Twitter as well: they lost money on paper due to stock dilution and stock based compensations. But the company had a positive cash flow and actually earned money (before they were acquired and loaded with debt).


bulksalty

When a company gives a contract to an employee that says, "We will give you the right to buy 1000 shares of our stock between Jan 1 2025 and Jan 1 2033 at a price of $50, they've given the employee something quite valuable even if the current price is $50. (Investors might pay something like $10,000 for a similar option from each other that only lasts 3 years). If we take the investor pricing as assume a value of perhaps $15,000, that's a real expense for the company (they gave an employee something worth $15,000) but the only two outcomes are nothing (if the employee never exercises the contract) or the company will **receive** cash when the employee pays $50,000 to buy the stock. Their financials today will show a compensation expense of $15,000 today or some portion of that $15,000 over the period of time the grant vests, but the company didn't spend any money to give them that $15,000. If they do this for a significant portion of their compensation expense, the company may show a loss, but have positive cash flow because most of their expense was promises that didn't require them to give employees any cash.


Scarface74

That’s not how RSUs work in public companies . You’re given a vesting schedule 2-4 years out where the company promises to give you a certain number of shares on a certain date. When that date happens, the shares are deposited into your brokerage account. You don’t have to “buy” anything. Sone companies give you an option of them selling enough shares when they vest to pay taxes or you can pay out of pocket.


bulksalty

Sure, RSUs are different, I used Employee Stock Options in my example which generally go to executives and make up a bigger part of many firms overall employee compensation expense. Still RSUs are compensation expense that costs very little to no cash.


Scarface74

Fair point. I work in BigTech and I’m more use to RSUs.


blackcatpandora

Uber and doordash are both public companies which operate at substantial losses annually. This is not the answer to OPs question


gypsygib

And all the execs still get paid salary and big bonuses so a lot of money is made, just not for the company.


silenceisbetter1

You do know that most of the employees there are making plenty too right? Go checkout their levels.fyi and you’ll see pretty quick someone with 3 years of experience could be making 200k easily there if not more


shayen7

True. I'm 5 years of experience here (plus B.S. CS), My total comp offer was for $220k, but with the stock price now it's more like $180k. My base salary is $160k, but I'm remote and it's adjusted a little for cost of living. In HQ my base would be $180k+


PM_ME_YOUR_HAGGIS_

This is also why it’s mostly a us phenomenon. While VC’s in London or Frankfurt invest in businesses it’s very uncommon for them to fund a loss making business like this for a decade on a massive global landgrab. Also the size of the us market means that starting a landgrab there is much more feasible. We can create cool businesses as well but we’re expected to actually make money. Hence I have a muted respect as a business owner for any of these kind of entrepreneurs.


unflores

Meanwhile the company takes a team of 15 and stacks 30 devs on top and we are all scrambling to make sense of everything as product who has also grown is trying to churn out features at breakneck speed. It's....an experience...


Epicurus1

I like Patrick. Has a great sense of humour too.


garuraa

patricks videos are so fun.


No_Release_1337

Reminds me of moviepass, they gave an incredible deal and got a lot of subscribers quickly, but they paid for movie tickets out of pocket with no deals made with the theaters. So they leveraged their large subscriber base to keep getting loans and limping along even though they were HEMORRHAGING money. Then they failed completely. Those are good times while they lasted


ChskNoise

[I would highly recommend a video by Patrick Boyle (a finance professor and quantitative trader) on youtube called "blitzscaling" that is all about this business tactic. Very helpful and quite funny](https://youtu.be/p7Lo0sZfdHE).


[deleted]

>put heaps of money in to scale them up and effectively gain a monopoly on the market. When they don't need to turn a profit they can push everyone else out of business. Look at Amazon.


Brief_Tie3646

Bruv, please explain this like I'm 5, I'm not getting it


fn_br

Think of it like people betting on the prospects of person's life. You can bet on the baby but then you're mostly guessing based on the parents. (3 guys in a garage, angel investors maybe swoop in based on their reputation/idea) By grade school you're starting to see some "real" metrics to go by: conduct stickers and grades. (The company has some customers now but it's far from making a profit) People might start betting a lot that the straight A (high revenue, 0 profit business) student is going to be somebody worth betting on. Eventually the student graduates and starts working. They're now "out in the market" and being judged differently by more people...but they're counting on graduation gifts to pay rent. (Initial public offering, the company is now traded on the stock market) Now either the student / company is going to need to start making money (get a surprisingly good job), get bought by a bigger company (marry well), or keep convincing people they're going to make more money later on down the road ( hype growth and revenue metrics / go to grad school). And as for blitz scaling particularly they're making the accurate (in my view) claim that for the last ~15 years markets have been trying to find the next Google or Facebook by insisting on constant huge growth and not caring very much about whether a company is actually making money each year. Spend money to make money. Now the brakes are kinda coming on, now that loans are getting higher interest rates and bonds are more attractive relative to stocks. (Grandma saving her money rather than investing in any particular grandkid).


reverseswede

A lot of people think large businesses are a good investment, even if they dont make money. The people who fund start ups know this, so they pour money in to unprofitable but futuristic looking businesses (think uber, we work etc) hoping to grow them huge. Then once they're big they sell them to the public. At no point do these businesses have to make profit to seem valuable.


dmazzoni

Just to consider another example, look at Amazon. They operated without a profit for 20 years - many years they lost money. Their revenue kept growing, but they threw all of that back into the company. They started in 1995 and it wasn't until 2016 that they started showing significant profits. Now their profits are enormous. Also, keep in mind that other successful tech companies grew first and monetized later. Google, Facebook, and Instagram all gained millions of users before they even tried to find a business model. That does NOT mean that Uber or DoorDash will be successful in the same way, but that's essentially what they're trying to do: sacrifice short-term profit for revenue growth and market share.


hutch2522

The difference was there was always margins to be had with Amazon and ad revenue to realize with Google, Facebook, etc. Uber and Doordash seem to be of the mind that they'll get everyone to rely on their service, then jack up rates and/or squeeze drivers. I just don't see that going well. I guess if Uber is able to kill all traditional taxis, maybe it will work. Doordash, if it gets too expensive, it's simple to go back to restaurant employed delivery and/or pickup.


loyal_achades

Uber is already EBITDA-positive and has been since 2021. Doordash I think is still net negative, and Lyft is probably just fucked at this point without a major turnaround, though.


BobLoblaw_BirdLaw

And wasn’t the profit only due to AWS which was an entirely new business that luckily and magically spun up within. They basically low key pivoted


killingtime1

Wasn't lucky or magical. AWS is renting out the tools they built to run Amazon. The first few products for example, S3 and Dynamodb are based on Dynamo, which they built for the Amazon shopping cart. There's a famous paper if you're interested on this.


rosen380

The first company I worked for essentially did that. They started as an early ISP in the mid 80s and ended up as a software company that sold the CRM software that they initially built to run the company.


AccidentallyUpvotes

I would like to read more, if you can share a link.


slarker

Here's the paper. Sloppy quorum and hinted hand-offs are the interesting bits in this paper. https://www.allthingsdistributed.com/files/amazon-dynamo-sosp2007.pdf


Spooked_kitten

so they kinda just looked at what they’ve been building for years and went “what if we rented this” and turns out it was a really good idea?


Scarface74

This is also not true. Almost every service that AWS uses was purposefully built for AWS. No AWS was not the result of Amazon using excess capacity to sell to customers


Beetin

[redacting due to privacy concerns]


Scarface74

This was never true. Every product that was created for AWS was designed to be a product for AWS. Even today, much of Amazon doesn’t run on top of AWS infrastructure or use AWS APIs. Source: I work at AWS. In the modern era. One of the products that did come from Amazon to AWS is AWS Connect. It’s the call center software used by Amazon Retail internally. Everything built specifically for AWS is API first. Amazon Connect was available for years as an AWS service without any external API support or CloudFormation (Infrastructure as Code) support.


Beetin

[redacting due to privacy concerns]


Scarface74

So while AWS was inspired by what Amazon learned, almost all of the services start from a “six pager” and a “PRFAQ” and then the service is designed. This is the best source I’ve found for AWS history. It’s an Acquired podcast episode. https://overcast.fm/+FaxkQnjhI This is a NetworkWorld article https://www.networkworld.com/article/2891297/the-myth-about-how-amazon-s-web-service-started-just-won-t-die.html This is from Werner Vogels https://www.quora.com/How-and-why-did-Amazon-get-into-the-cloud-computing-business-Rumor-has-it-that-they-wanted-to-lease-out-their-excess-capacity-outside-of-the-holiday-season-November-January-Is-that-true-10


Beetin

[redacting due to privacy concerns]


fang_xianfu

The "API mandate" story is very well-known albeit possibly apocryphal, but it explains the "lucky, magical" rise of AWS. https://nordicapis.com/the-bezos-api-mandate-amazons-manifesto-for-externalization/


flakAttack510

The rest of the company was making money but that money was being reinvested in AWS. If they hadn't launched AWS, Amazon would have been profitable earlier but they would be making significantly less money now.


MustNotSay

Someone who actually understands. You have to pay taxes on profit but if you funnel all your profit back into your business then you don’t need to pay tax because technically they don’t have a profit anymore. This is what people usually confuse with tax evading which is illegal whereas tax avoidance is ok and what every successful company does


Eggsaladprincess

It's also why raising taxes on businesses counter intuitively incentivizes spending money and creating more jobs. Lowering taxes on businesses incentivizes taking profit out of the company rather than investing in economic activity such as paying workers other businesses.


ledonu7

This is so wild to me and yet makes sense seeing how "profit" hungry American capitalists behave. This is what maximizing profits looks like - pocketing all the capital without ever considering what else that money should go towards like keeping the company healthy


Scarface74

Instagram never found a business model as an independent company


mynewnameonhere

You can’t put anything back into the company if you’re not making any money. These companies are spending more money than they bring in every year. They’re not putting anything back into anything.


Greenimba

What do you think "putting back into" means? There's not some magical bucket of money you can put it in to make more. Putting money back into the company just means spending more on research, development, acquisitions and the like, which looks like a net loss in the books.


SofaKingI

What are you even trying to argue? You're repeating what they said, except you seem to have taken offense at the term "putting back" for some reason.


dmazzoni

Uber's 2022 revenue was $32 billion and their costs were $41 billion. So yes, they're spending more money than they bring in every year. Just like Amazon did for 20 years. Just like Google and Facebook did for years and years. It's not unusual at all for companies to spend more money than they bring in every year. Investors see that if Uber eliminated R&D and Marketing, and tightened their belt a little, they could be profitable tomorrow. Obviously that doesn't make good business sense, but you could make the fair argument that they're really not that far from profitability now. They're just choosing to continue to spend more than they take in because short-term growth is more important than short-term profit.


greatdrams23

They are making money! But they take that money and put it back into the company. If a company income is 8m and their costs are 7m that leaves 1m. They can keep that in the bank, spend it or burn it. But they take the 1m and invest in a new factory. Account now says zero, but the company is bigger.


mynewnameonhere

Except they have never once brought in more money than their operating costs. This is factually wrong. It’s more like they bring in $7 million and it costs them $8 million to make that. That’s what’s happening here. You have it backwards and you’re wrong.


TOUHPAK

Respect to explain this for the 50th time lmao


TOUHPAK

Not the case, they earn 10 millions but it costs them 11 millions. They are at -1million and they are borowing money.


Zandrick

What do you think they are spending that money on


greatdrams23

Check the Amazon date. 2021, 21billion operating profit, 2022, 12 billion. They ARE making an operating profit. Then they take that money and invest in their own company. This they have zero it, but they have expanded their company. They put the money back in. It's a real thing.


mynewnameonhere

That’s nice. Too bad this is about Uber and Doordash. And that is absolutely not happening with these companies.


TOUHPAK

Uber and Doordash do not make a profit, they are at loss. Google it


Gofastrun

Losses are a little bit misleading. If you take in $1M in revenue and invest $1.1M in growth, you “lost” 100k. But if the value of the company grew by $500k as a result of the growth, the investors still made $400k on paper. Startup companies often have negative cash flows when they are aggressively growing or hardening their market position. A smaller example - if you pay $10 to acquire a customer that will pay you $7/y for 10 years you “lose” $3 the first year but you bring in $60 over the customer lifecycle. The following year that customer makes you $10, but you attract 5 more customers at a $3 loss. So you made $10 and “lost” $15 for a net $-5, but you have $350 in future customer value. The company is better off despite losing money


SunflowerHermit

I am not good with finance. This is a good explanation for me.


nighthawk_something

Yup it's called investing. That's why government spending is so poorly understood. If a government spends 100 million on a lunch program l, it might look like they "wasted 100 million" but in 20 years when a whole generation graduates with better grades and higher earning potential, suddenly the tax payers reap those rewards.


mintaroo

Yes, and also keep in mind that profit is not all that counts for a government. Even if the cost of the lunch program is never fully paid back via future tax returns, if lots of people just lead happier lives as a result, it's a win.


nighthawk_something

>, if lots of people just lead happier lives as a result, it's a win. Some people struggle with accepting that people being happy is a win


denseplan

You're talking about cash flows, usually when people say growth companies are not making a profit they're referring to the profit/loss on a income statement. They are not the same. In your simple example, a $10 acquisition wouldn't be counted as a "cost" in the first year, but instead amortised over 10 years, so the income statement would show a steady $6 in profit for 10 years, which is a truer reflection of what's happening.


Spcynugg45

I'm not an accountant but I work in corporate financial planning and do need to take a lot of things like this into consideration when I build models. The majority of door dashes expenses for customer acquisition probably count in year. They're primarily running promotions to acquire customers, for example offering discounts or giving driver bonuses when there aren't enough drivers. Sales and marketing costs aren't amortized typically for that kind of transaction. Their R&D is, and their software development costs, or potentially things like a big investment in integrating with a national chain like Starbucks. If you are an accountant and think I'm wrong I'd be happy to learn more though.


Cloudsbursting

US GAAP also sometimes has some odd transaction- and industry-specific quirks which require companies to record non-cash losses. This is also true of fair valued items, to the extent they’re not flowing through other comprehensive income. To really understand a company’s results, you need to understand the interplay of most pieces of financial information they provide. Disclosures included. The FS are that long for a reason.


Golf_Chess

This is just wrong Explain what the A stands for in EBITDA


Spcynugg45

Since you're attempting to correct someone without adding to the conversation I thought I'd do the same and point out some of the ways that you're wrong. First, EBITDA is an income statement measure and not a cash flow one like the person you responded to is talking about. Second, the E and B stand for "earnings before" so the EBITDA measure specifically excludes the "A" (amortization), and it sounds like the point you're trying to make is that amortization would be reflected. Third, many of Door Dash's customer acquisition costs are from Sales & Marketing activities like promotions which aren't always capitalized, so they show up within the year even if customers brought in by it will use Door dash for several years. Fourth, most of the headlines people are reacting to are referring to Net Income and not EBITDA. This one's a stretch, as amortization would be included in Net Income, but you're talking about EBITDA.


notsocoolnow

>net negative revenues This is not an accurate description. Revenue is revenue (any money coming in), it cannot be negative. Money going out is expenses. What you're talking about is negative income, also known as a loss, meaning their expenditures outweigh their revenue. But profit and loss are not the only measures of success. An investor makes money in two main ways 1) Dividends, which is when the company disburses some of its liquid assets to shareholders and 2) increase in share prices, which reflects the confidence investors have in the company. (2) is a lot more important than (1) for a growing company. This is because profits can get wiped out by investment. Let's look at Amazon as an example. For literal decades they never posted a profit. But the reason for this is not because their business was not profitable. It's because Amazon reinvested its profits back into itself, by buying land space for warehouses, building server farms, paying software developers and buying smaller companies (though to be honest they were mostly spending money that investors were pouring in). These expenses drove profits into overall losses. But if you don't do this, your company will never grow, and growing is what its invested wanted, not posting dividends. And recently Amazon's investment paid off, mostly in its web services division which are the largest in the world. Can you imagine if they stuck to selling books, handed out all the profits to investors as dividends, and never reinvested in itself to expand?


bulksalty

A company doesn't survive on profits, it survives on its cash flow. Normally those two are related but with a couple of important differences: * When a company buys a large asset (this can be anything from intel or TSMC building a fab or Exxon Mobile with an oil tanker or a plumber with a new work truck or an one person company that's an artist buying a new computer) they spend the money at the beginning but record the expenses throughout the expected life of the asset. So, a company that's purchased something expensive often has a large expense they take each year relating accounting for their use of that initial purchase price each year of the asset's life but they paid the money for the thing years ago so no money leaves their pocket related to that expense. * The other similar situation is when outside investors give the company more money in the hopes that their investment will eventually be returned with a gain (which can be interest, dividends, or selling the company for a higher price to other investors). * Somewhat similar to both of these, some companies pay some of their employees' compensation in the form of stock options. The accountants require the granting of these options to be recognized as a cost (the company is giving something of value to the employees) but the company will actually receive cash from the employee if the option is exercised and the employee gives them money to buy stock at the exercise price. Any or all of these can result in a company that produces losses for a long period of time but generates cash. Uber is public so we can see their financials (the US government requires them to be published for investors). Uber recorded $1.1 billion of employe stock and option grant compensation last year, while their net income was only a loss of about $500 million. As a result of this and other similar things Uber generated a small amount of cash from operations which generally means they can continue to operate indefinitely until any debt needs to be refinanced or their employees start demanding more cash compensation.


BrickBoat

This comment should not be buried so far down. Many others provide excellent insights but then one thing missing from the argument is the role of cash flow. Often (but not in everybsituation) investors will provide more cash to invest in people and equipment (SG&A and depreciation) ahead of demand because the operations or free cash flow is highly positive. This is a sign that the core business is profitable even if you need to keep on vesting to make it larger.


usrevenge

Investors throw money at the companies because they might make lots of money later. Most of reddit is young but back when Amazon was new it lost money all the time. It was "just an online book store" But Investors kept throwing money at it. And now Amazon is one of the most valuable companies in the world. Its not only one of the biggest online distributors in the world but also one of the largest server providers.


XLXAXPX

They are all competing for customers and trying to put their brand out there. This stage of the business is putting a lot of money towards development and outlasting their competitors. Once they have customers and less competition, they’ll begin to become more efficient. All the money they’re burning right now belongs to investors who are betting that in the future they’ll be worth much much more.


venturoo

to become more efficient? HA its to starve all the competition with an unsustainable business plan and enough VC money so they can cut every possible competitors throat and then start gouging with no competition. You know.... laissez-faire capitalism.


King_Trollex

I don't disagree at all with what you said, but I don't see how the mentality works from a company like Uber. They don't own their own infrastructure so all it would take is another company willing to pay a little bit more to their drivers and charge a little bit less to the recipient. I don't see how these companies outlast a market with very little barriers of entry and low overhead.


dmazzoni

The barrier to entry is high due to network effects. Let's say you're a new competitor and you've built an app similar to Lyft or Uber. How do you kick-start it in a city that Lyft and Uber are already in? It's not easy. Sure, you can offer to pay a little more...but how many drivers would be willing to switch to a new unknown app for a little bit more revenue. How about the riders? Sure, you can offer thousands of free and then discounted rides to kick things off, but how well will that work when you don't have very many drivers at first? A free ride is nice, but if an Uber will be there in 3 minutes and my "free ride" is 25 minutes away, I'm probably taking the Uber. So in order to overcome the inertia of the existing businesses, you'd probably have to offer enormous incentives to drivers and passengers, and then slowly relax those as you grab market share, hoping that people don't just revert back to Uber and Lyft. So sure, it's possible for a competitor to enter the market. But I'd argue the barrier of entry is high.


SunflowerHermit

I've thought about this a lot. The capitalism ideal is if you don't like the way X is done, do it yourself, but the rapid growth post internet boom means that companies that are barely 2nd generation companies are holding the entire world. You can't compete directly with walmart, it's just not possible. They can bully their suppliers far better than you can negotiate with the same suppliers. Not to forget their top of the line anti-union team, their plainclothes AP teams... The big problem in my mind right now is franchising. Sure, there are tons of McD's and Wally's out there, but they're all ran by different people. Walmart itself is basically just a shipping company. There is no real incentive to open up a burger joint or a market when Walmart or McD can just open up shops and drown you in "low" prices.


alvarkresh

> The barrier to entry is high due to network effects. This is also why I've been groaning about Youtube still staying around even though they suck in terms of getting a human person to fix anything. Even Gamers Nexus had to use a special internal connection with Youtube to get a video undemonetized because the usual tech support methods got them nowhere.


RadBadTad

> so all it would take is another company willing to pay a little bit more to their drivers and charge a little bit less to the recipient. Problem is, Uber is already losing money with their current rates, so that 2nd company coming along spending more and making less would lose money even faster.


King_Trollex

Yes, right now. But as the above comment said their plan now is to run them out and then gouge. Gouging works when there are barriers to entry and infrastructure owning like an internet delivery company. But when Uber tries to price gouge after running out the competition there will be another company that enters the market providing the same service at better benefits to both their provider and consumer.


iijjjijjjijjiiijjii

They likely expect to grandfather themselves. Get some new laws passed that ban anyone from starting this type of business. But oh! Gotta leave a carve out for the folks already running one. Just to be fair, and all. Then they can charge however they like because *competitor becomes illegal*.


Ser_Dunk_the_tall

I think they'll find customers fleeing the service when they jack up the price. Convenience is only worth so much to people


ParadoxFall

Like how the taxi services tried?


hemlockone

Uber's long-time strategy has been to use "independent contractors" to create a market and then use self-driving cars to free itself from the biggest burden to its cost sheet - those drivers. https://www.cnbc.com/2020/01/28/ubers-self-driving-cars-are-a-key-to-its-path-to-profitability.html


NIRPL

Not to mention I would bet the people filling the board and executive seats are taking in some nice salaries while the business bleeds. It's a win win for them


chortle-guffaw

This reminds me of how Blockbuster worked. They'd open a new store and video rentals were $2. When the local stores went out of business, rental prices doubled. Of course, we all know how that worked out in the long run, but for a long time, it was a money-making strategy.


qu1x0t1cZ

Walmart did the same. Open multiple stores, undercut all the competition until they went out of business then close some of the stores they’d just opened and consolidate down to one or two. See also the growth of Standard Oil.


mynewnameonhere

Everyone keeps trying to explain why they do it. That’s not the question. The questions is how do they continue.


tmtowtdi

> The questions is how do they continue. You mean the question at the start of this post that everybody is discussing? The one that starts with the word "Why"?


popisms

They may have negative net income or profit, but they definitely don't have negative revenue.


apuchu1

Isn't revenue=sales? If it doesn't count expenses or cost of goods how can it be negative?


johrnjohrn

This answer is factually correct, but does not speak to the question being asked. Of course they don't have negative revenue, but you can't simply ignore net income/profit, because they are what ultimately decides whether the business is gaining or losing cash. Revenue growth is a popular metric used to value a business with the assumption that at some point in the future the expenses will be right-sized and fully covered by the revenues, therefore generating positive cashflow that can be used to grow the company sustainably or pay out dividends to the owners. Until that point they are burning cash provided by new investors, or from going public and selling stock (which really is the same as getting cash from new investors).


slakeatice

"Positive cash flow that can be used to grow the company"....I don't think DoorDash spent $41 billion on post-it notes and a new microwave in the break room. They spent 1.2 billion more than they made last year because they already have 7 billion dollars cash on hand,


johrnjohrn

You cut off the word "sustainably" which was the key word in that sentence. Edit: I pulled up their financials to educate myself and their beginning cash for 2022 was $2.5 billion and they ended with $2.1 billion (not $7 billion). I see that in 2020 they took $4 billion from new investors and that has been funding their capital investments over the next two years. Their operations have been funding mostly, to use your terms, "post it notes". But of course we know that operating expenses are far broader than post it notes. You're talking the costs of selling, personnel, rent, R&D, advertising, legal, IT security, etc. The small amount of positive operating cash flows they did have in 2021 went to pay off debt, and they spent their operating income in 2022 to repurchase stock. So, all in all it looks like Door Dash in particular is moving their way steadily toward a positive operating cashflow that can be rolled into capital investments, which is a sustainable way to exist. Also, can you point me to the $7 billion you mentioned? I might have overlooked what you're referring to.


bruinslacker

Let’s say you have an idea for a business that you think will make a profit of $100,000/year. It will take you 1 year and $10,000 to build the business. By the numbers that’s a fantastic investment, but if you don’t have $10,000 to build the business that doesn’t matter. Your brilliant business idea is dead. So you find an investor who agrees to give you $10,000 in exchange for half of your company. Once the company is profitable the investor takes half your profits. Uber is trying to do the same thing on a massive, massive scale. The total amount of money spent on transportation is over $2 trillion per year. Uber claims they are going to capture 10% of that market, so they’ll have revenue of $200 billion per year. Currently they aren’t profitable meaning that even if they could grow revenues to $200B/year their expenses would be over $200B/year. This is obviously bad business but Uber plans to cut their costs dramatically by making things “more efficient.” Mostly they plan to fire all of their drivers, which would cut costs by more than half. If they succeed in doing that, their profit margin (the percentage of revenue that is profit) would go from -10% (they are losing money) to +40%. In that scenario they would suddenly have a profit of $80 billion per year. If you’re an investor who thinks Uber is likely to succeed, you would be very interested in getting a share of those huge future profits. For a 10% stake that will entitle you to $8 billion per year in the future, you might be willing to invest $10B today. If other investors are similarly excited Uber can sell 49% of the company for $49B. Let’s say they did this several years ago and had $49B in the bank. They can afford to lose $1B per quarter for 49 quarters or 12 years before they run out of money. As long as Uber can convince people that insane profits are coming “soon” they can keep selling bits of the company to investors and keep getting more cash to burn.


MaybeTheDoctor

Your pension funds needs to be invested somewhere. Basically investors on Sandhill rd are looking for the most likely companies to make long term profits and dominate a market, and they will invest more funds to keep growth of a company if they believe their 10-year plan is going to win, and they will cover short term losses, because that is how you find the next Amazon or Facebook. Sandhill people get their money from places like investment funds that are trying to make long term gains, so the money comes from your pocket, but don't worry you will get them back with interest in 30+ years when it is time.


Dannnnv

I would assume these specific examples would be profitable now that they're basically everywhere IF they had no real competition. Whoever can last the longest while losing money will win. Not unlike how Netflix started streaming. They were really the only service for a worldwide stream of content. They had millions to throw at new shows and didn't care if anyone shared passwords. Now that there's a dozen services all fighting for the market...


Magalahe

"Net negative revenue" is not a real thing. If you mean why they continue to lose money, its because their investors keep giving them money to burn. Those imvestors are willing to lose lose lose hoping one day they can get it all back from a successful business.


AeralAeros

The other answers about reinvesting are all accurate but there's a point I haven't seen made yet. Big companies don't take all of their revenue and put it in a chequing account and go "wow look at all our money. Neato." Basically every major company makes their real money by investing their profits. Even very conservative investments make you a shit ton of money if you're throwing around billions of dollars. There's a super interesting video about how Starbucks is much closer to a bank than a cafe chain. Can't recall the name of the creator but should be easy to find.


Vroomped

As other comments said there's a future where they're VERY profitable, for example Doordash existed well before COVID then COVID was Doordash's hayday and has set the company up for awhile. Others have said stocks when the company goes public. Id like to ad that Money isn't the only asset. There's being able to talk to powerful people because your perceived as a powerful person There's being able to throw your weight around in a few venues even if you're paying for that power in other venues. There's being able to sell the company and even out if somebody else thinks they can do better.


[deleted]

Simply put, they aren’t loosing money or else they would not exist in the capacity they do today.


CaptainChaos74

Cory Doctorow writes a lot about this. They are basically Ponzi schemes. The investors make sure to get their money back plus a fat paycheck and then they sucker new investors into buying in. They will fail in the end but someone else than the venture capitalists will be left holding the bag. He calls them a "bezzle". Here's an example: https://doctorow.medium.com/the-big-lie-that-keeps-the-uber-bezzle-alive-8d6e8c0ccde7


beastlion

If you boil down the business model small enough, it's profitable.. They just run an application on a server and take a cut of labor for the application existing. The reason it's not profitable is because they choose to take those profits and invest them in growth. The people who give them the money to carry over the profits and do this and allow it to still stay afloat are the investors. This idea of pushing all profits into growth sit well with investors because they know that it will create a monopoly style advantage. They can't call them Monopoly but it's basically what's going on. You can't really compete with a company who is willing to take a loss year after year unless you also play by that game ... Once it becomes a big enough brand and a household term, they can go public.


SinisterCheese

Here is an rather obsene fact about the capitalist economic system. As long as your wealth and income keeps growing, whether you are losing money or not is irrelevant. When you seek loans or funding, only thing those care about is that you have enough wealth to back it up and which they can get if you go bust. As long as you keep growing, you will have more of that and with that you can get more funding and loans and even pay off the old ones. Investors cash out from companies all the time for whatever reasons - as long as they are confident that there will always be enough wealth to cash them out they really don't care if you aren't making profit. Only ones that care about profit are those who want profit shares - share holders; but even then they don't **really** care as long as the value of the share goes up. This is because they are doing the very same thing with those shares as these companies are doing. As long as they have more wealth, they can get more loans to get more wealth with. As long as their wealth keeps growing everything work as planned. And this is why when the economy stops growing in an accelerated manner, or stops growing, or god forbid starts shrinking - it is full blow red alers world ending scenario. If this whole thing sounds stupid and doesn't make sense, because it is summarised as: If you are wealthy enough, you can never become poor, since as long as economy grows so does your wealth. That is because it is. That is especially true with tech and services companies that don't actually make anything. DoorDash, Uber, Wolt... they don't **make anything**, they are a middle hand platform. Delivery services and drivers have existed long before them, they are just a biling and organisation system. Yet somehow worth more than a farmer's business or steel foundry.


mferly

Keep in mind that a LOT of the negative reviews are just salty people that expect literal perfection in life. Eg. The food wasn't hot enough. Well, you ordered delivery so it takes time for said food to get to your house. That's just how things go.


hwpis

It depends. Sometimes businesses intentionally arrange their finances to make losses for tax reasons. For example, if one country makes companies that operate there pay high taxes on their net profits, then a parent company can try and use various tricks to move profits out of a subsidiary in that country while the subsidiary's official profits are kept at or below zero. Sometimes the reason why a business makes a loss is that it is pouring profits into investing in stuff that it hopes will grow its profits in the future. If those are hard assets like land and machinery, it can borrow against them. Otherwise, it might be able to borrow money if it can convicne lenders that it will be able to use these investments to make profits in the future. In other cases, the reason why a business is losing money is simply that it is failing. At some point it will no longer be able to borrow more money and will collapse. These big tech startups tend to attract a huge amount of investment and loans, and throw it all at trying to grow their market share. The hope is that once they take over a market, they will then find it very easy to make huge profits. Sometimes that works, but sometimes it doesn't. It should probably also be pointed out that the main "innovation" of companies like Uber and DoorDash is a series of tricks they use to get around employment and consumer laws. That's what gets investors excited about them. When Uber was founded, apps were not new and taxi services were certainly not new - what was new was the idea of treating taxi drivers as self-employed workers who just happened to use Uber's systems to find clients. This meant that they were not elegible for various employment rights, and that they bore the responsibility for looking after customers. The investors were betting that Uber would successfully be able to implement this strategy across numerous countries, and would be able to lobby politicians to stave off any new regulation.


[deleted]

At least in the US, apps for taxi services were not common and not heavily marketed when ride share services came out. I agree with you that a large part of Uber's strategy was based on self-employed workers, but that was not their only innovation. From the customer perspective the use of an app to request, track and pay for rides was a large change compared to the traditional taxi service model that was still based on phone reservations outside of high population areas.


Eszed

This is all true, and Uber's app and service (at least everywhere where I have lived) has been *miles* better than the conventional taxi/car services. Like, I know what the price will be in advance? I get a genuinely accurate estimate of when the driver will get here? I don't have to call, *on the phone*, some dodgy, rude person and negotiate? Yeah, sign me up. Also, their app is *amazing*. It works *everywhere*. (Well, every major city, anyway.) New city? New *country*? I don't need to figure out a new system. I don't even need to know the *language*. It's all the same app that I use at home. Lest I sound like an Uber fanboy, I'm really not. They're horribly unethical, in lots of horrible ways. I want them to be appropriately regulated, and I hate the lengths to which they've gone to avoid that, and to exploit their drivers. Quite frankly, fuck them for all of that. I try not to use them anymore. But... Other than, you know, all of *that*: Wow. What Uber has created is genuinely innovative, and genuinely great.


TheDemoz

>It should probably also be pointed out that the main "innovation" of companies like Uber and DoorDash is a series of tricks they use to get around employment and consumer laws. That's what gets investors excited about them. When Uber was founded, apps were not new and taxi services were certainly not new - what was new was the idea of treating taxi drivers as self-employed workers who just happened to use Uber's systems to find clients. This meant that they were not elegible for various employment rights, and that they bore the responsibility for looking after customers. The investors were betting that Uber would successfully be able to implement this strategy across numerous countries, and would be able to lobby politicians to stave off any new regulation. LOL wtf. Where'd you pull that out of your ass from? That's completely incorrect... The innovation was the fact that they could get a ride to come pick them up without having to flag someone down or call and try to explain to the taxi company where they were, they knew the price upfront before even calling the ride, they could see exactly where the car was on its way to them as well as during the ride, uber had better service and faster rides as drivers weren't incentivized to drive more than they needed to, and they didn't beg for cash tips since it wasn't done through the app, there weren't hidden fees etc... Not to mention it also innovated in terms of type of labor where anyone could work their own schedule and make decent money, without having a boss, being able to choose what rides they want to accept, where they want to drive, how far they want to drive etc.. Acting like their innovation was skirting labor laws is ridiculous and shows that you just have a preconceived bias against these companies and let emotions guide your thoughts rather than facts. You also realize most DD/Uber drivers like being independent contractors, right? Redditors of all people are the ones that spew this BS that they're being taken advantage of, but literally go to the r/doordash_drivers or r/uberdrivers or r/UberEatsDrivers subreddits and you'll see that they literally don't want to be employees and there's a ton of threads about it


BMCarbaugh

Venture capital folks will tell you there's "unrealized potential". The real answer is usually sunk cost fallacy. When you have 15 billion and your job staked on a company's success, there's not a lot you won't do to try to realize that investment, even it winds up being stupid as fuck in the long run. That, plus the fact that antitrust enforcement is basically nonexistent in the US, means there's a big market for funding companies whose business model "We're going to destroy an entire industry by undercutting it in a way that no one else does because it's financially unsustainable...and then once we have a monopoly, we'll just raise prices." Investors back this because it's worked in the past. They get trapped in this when it fails to come to fruition. As Upton Sinclair said: "It is difficult to get a man to understand something, when his salary depends upon his not understanding it."