Interesting read from American Affairs, delving into Uber’s pre-IPO financials and making the case that it’s not the great revolution in transport it claims to be admin a way resembles a Ponzi scheme with earlier investors making massive profits from the suckers lured in later.

Uber’s investors, however, never expected that their returns would come from superior efficiency in competitive markets. Uber pursued a “growth at all costs” strategy financed by a staggering $20 billion in investor funding. This funding subsidized fares and service levels that could not be matched by incumbents who had to cover costs out of actual passenger fares. Uber’s massive subsidies were explicitly anticompetitive—and are ultimately unsustainable—but they made the company enormously popular with passengers who enjoyed not having to pay the full cost of their service.

Uber’s financials don’t tell a great story…

Uber’s GAAP profit margin was –135 percent in 2015. It appeared to improve to –51 percent in 2017 and (adjusting for the divestiture and noncash equity gains discussed above) –35 percent in 2018. Yet these subsequent “improvements” were not driven by efficiency gains, but by the ability to force driver take-home pay down to minimum wage levels. If Uber drivers still received their 2015 share of each passenger dollar, Uber’s negative margins would still be in the triple digits.

I wonder how many of today’s unicorns are where they are today due to the essentially zero cost of money since the GFC supporting otherwise insupportable business models, or at least permitting those unprofitable business models to persist for far longer than would otherwise be the case. Tesla’s another candidate. Great cars by all accounts, and Musk is a great entrepreneur, but making the transition to established, profitable car maker seems perpetually out of reach.