Uber finally makes a profit off ride-sharing
Ride-share giant Uber said Tuesday it posted an operating profit of $326 million in the second quarter of the year. What’s so special about Uber’s operating profit? Well, this was the first time Uber had been profitable since … ever.
Uber was founded in 2009, and until Tuesday had never been in the proverbial black. So, how does a company survive for 14 years without making a profit?
Uber became a verb before it became profitable. That was partly by choice, said Arun Sundararajan at NYU’s Stern School of Business.
“The company is pursuing growth over profitability,” Sundararajan said.
The strategy of growing your customer base before making money is tried and true in tech. (Think Amazon.) But Sundararajan said Uber basically couldn’t have picked a better time to ask investors to be patient.
The company was launched in 2009, when interest rates were ultra-low. “When interest rates are low, money is looking for other investment opportunities, that might generate a higher return, as a consequence,” Sundararajan said.
Big investors said, ‘Well, safe investments like Treasury bonds aren’t making me much … maybe I’ll just wait and see on Uber.’ And in the meantime, Uber riders benefited.
“You have to think of it a little bit like that old, you know, BMG records model where, you know, your first rides were like, eight for a penny. And then after that, you’re in for 20 bucks a ride. And so that’s certainly real and it’s a marketing cost,” said Sarah Kunst, a venture capitalist who runs Cleo Capital.
Nowadays, with higher interest rates, investors are less likely to wait, she said.
But it does depend. Even while Uber was losing money, investors knew it had wormed its way into our everyday lives.
“When you perform a function that it’s really hard to imagine life without, then it becomes a little bit easier to say, I’m going to keep investing in this company,” Kunst said.
In that sense, when a tech company becomes a verb, it might be only a matter of time before it’s a money machine.
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