[wavesounds]

This is literally the top comment on every recently IPO'd companies earnings. "Why are they spending so much money, why aren't they profitable yet." It's like HN doesn't understand the purpose of going public is to raise money, and the reason you raise money is because you see growth opportunities that are worth spending money on instead of returning profits to investors.

[icxa]

"It's like HN doesn't understand of raising money on an existing valueless proposition!"

No seriously, I don't understand. Explain to me. I grew up in and around small businesses, I legit don't understand how this bulls* flies. It's all being propped up for god knows what reason, and ultimately your average citizen is going to have to pay for it when it all comes crashing down, like always. I don't care if a group of "visionary VCs" "see value" in it. We've replaced a sustainable industry (taxis) with Uber and Lyft, which only were able to because they were able to skirt by regulation, and now if and when they vanish because again, they have proven to be unable to actually make profit to date, we will now have a crumbled public transit mode left to rebuild. Irrational investments that negatively affect the public should be faced with this intense scrutiny.

I am honestly obviously ignorant to whatever is going on here, so I am allowing myself to be educated here.

[cljs-js-eval]

As someone who did not have a car for the better part of a decade, living in one city known for a good taxi system and one without a good taxi system:

"sustainable industry" is not the term I would use to describe taxis. Their dispatch systems badly needed replacing.

Things I saw in taxis pre-uber:

- Calling a dispatcher and giving an intersection, to receive a "we don't pick up at intersections, you need a valid street address" message. This was in the city without a lot of taxis. Gee, wonder why.

- Drivers speeding off once they realized you didn't mean to go to the airport.

- Drivers intentionally using both feet to drive, so they would stay well below the speed limit. If confronted, it was in the name of "safety". Dispatchers couldn't track locations so they had no idea how long the trip should take, and weren't interested in you as a repeat customer enough to do anything to the driver.

- Multiple broken card readers.

- Generally, it was impossible to understand dispatchers. Almost every one I talked to had a thick accent beyond what I would expect from even a newer first-generation immigrant.

[jerkstate]

sure, taxis were horrible and expensive. however, they made enough money to sustain themselves with their high prices, low margins, and crummy service. I guess the question is, what would Uber/Lyft have to charge to break even? 10% more? 50% more? What would they have to charge to justify their share price? Do they make sense as businesses?

[cljs-js-eval]

Given the strides they've made in automated dispatching and the increased demand for taxis that has come about as a response, I'm guessing the model makes sense at a higher price than they currently charge.

I was literally the model customer for taxis. No car, disposable income, goes out drinking a lot. Even so, I actively avoided taxis whenever I could before uber hopped on the scene. It wasn't a question of money - their dispatch services actively left money on the table with their terrible, terrible quality.

Whether Uber/Lyft took out too much money remains to be seen. But the dispatching technology is an immensely profitable business by itself.

[marcell]

Assuming this post is ernest, it's pretty simple. Companies defer profit now because they see growth opportunity ahead. They are betting that if they lose $1B this year, over the next 20 years they'll make up this years loss and more. So Lyft thinks that by losing $1B this year, they can make, say, an extra $1.5B over the next 20 years.

It's possible they are wrong, in which case investors will lose money. However, if they are correct, the investors will get good ROI. Depending on the investor's risk profile, this may/may not be an appealing proposition.

[braythwayt]

Or, VCs and management are betting that they can sell you this story long enough for them to cash out.

In finance, never ascribe to anything that which can be explained by amoral venality.

[ralph84]

If Lyft and (particularly) Uber can’t achieve profitability, they won’t just vanish. They’ll reorganize under Chapter 11 and shareholders will be mostly wiped out and creditors will become the new shareholders. Sure some people will lose money, but it’s not the disaster you’re making it out to be.

[moorhosj]

This is a vast oversimplification because these companies don’t exist in a vacuum. In my city, bus ridership is being crushed by Uber/Lyft (trains have been hurt less, but still impacted). In response the city has invested less in this infrastructure and lowered service levels. If these companies go belly-up today, they can’t make that change before tomorrow’s commute.

[ralph84]

The point of Chapter 11 is the company continues operating. To use a transportation example, all three of the largest airlines in the US went through Chapter 11 and never stopped flying during the process.

[moorhosj]

Yes, and all of those airlines have generated profits at some point, proving at least some viability. Uber and Lyft have yet to prove that.

Also, Chapter 11 allows companies to reorganize their debt. Debt was the main problem that airlines faced (pensions, etc.), not the problem Uber and Lyft face.

[viraptor]

I believe "see value" in this case means - they can start making profit by stopping growth. But since there's more expansion possible, they'd rather invest that money into themselves as "we can start making money now, but we'd rather make more money later".

I'm not saying it's healthy approach in all cases, but the cold calculation is not irrational.

Re. "replaced a sustainable industry (taxis)" - you mean things like taxi medallions? like unaccountable drivers who can ignore you? drivers who will charge you a made up amount? There were lots of issues with taxis - let's not forgot about those.

[astrange]

Public transit isn't run for a profit either, so moving demanding people off of it should actually make it more sustainable. (of course we'd rather have them using it to encourage better city design)

Have Uber/Lyft actually killed transit anywhere? Actually, have they even killed taxi companies? It'd be nice if they had, taxis are horrible, abusive, and not public transit either.

[dominotw]

> we will now have a crumbled public transit mode left to rebuild.

Thats a huge leap to say that uber/lyft caused our crumbling public transit.

[pbreit]

If you can invest $1 to make $2 you should then invest that $2 immediately, not put it in the bank.

[iaabtpbtpnn]

I don't think you're ignorant, you've described the situation well. It sounds like you are the one doing the educating here.

[mffnbs]

It sounds like they're either completely downplaying the idea that a company can temporarily forgo profitability for increased growth or they're ignorant of the fact that this is what they're doing.

People act like this is a modern travesty born out of the valley but it's moreso that the local restaurant you frequent isn't unique or intriguing to investors, so of course they don't have a backing allowing them the freedom of making a similar business decision.

If someone gave your restaurant a million dollar investment, do you make sure you're careful to keep your spending under your revenue intake? If so, then that investor just threw a million at you to literally keep it in the bank and to continue doing exactly what you were doing before then. In which case, why did you seek investment? Or do you perchance consider that you could use that investment to improve your business and future revenue?

It's not hard to determine why a company with a billion dollars in the bank might want to utilize that to accelerate growth. Amazon could have been profitable twenty years ago but then they would simply be an online bookstore.

[rb808]

A lot of people were saying this in January 1998 as well, and the Nasdaq more than tripled in price after that (before going even lower).

[boh]

The major problem with Lyft and the other unicorns is the growth already happened. The amount of additional growth necessary to sustain their supposed valuation is staggering and unlikely to occur, leaving the public markets paying for the exits of private investors(like Carl Icahn for instance). It would literally have to surpass Google-like growth to make it a worthwhile investment at the IPO price.

What we know about Lyft suggests it's overfunded and it's growth may be more the consequence of large investor inflows, rather than a successful business model.

People like to cite Amazon as proof that profits aren't necessary for a company's success, but even without arguing it as an obvious outlier, it wasn't worth $1 Billion when it IPOed in 1997. The public had a chance to participate in its growth rather than simply fund VC exuberance.

[mandeepj]

> purpose of going public is to raise money

Markets are not a charity or piggy bank or donation box. You have to prove your worthiness. If you keep on posting losses then stock is going to get slammed.

Now, coming to reason for going public. The reason that you listed is not the only one. Early investors want an exit. For the same reason, Uber's founder was kicked out and Dara was brought in - so that company can prepare for an IPO.

[thisisit]

There has also been a rise of

>you see growth opportunities that are worth spending money on instead of returning profits to investors.

I fail to understand why asking a company to return a profit considered wrong?

Sure, growth opportunities but then if that story is strong why weren't they able to sell it a VC for another round of funding?

[caprese]

I am HN and I see a growth opportunity at a 100 million valuation, just like the Series C investors did

WISH I WAS THEM!

It is perfectly fine to criticize and sit out an investment that runs counter to the history of the investible universe. It is perfectly fine to miss a rally because of it.

[tyingq]

"instead of returning profits to investors"

Adjusted net loss was $211.5 million. What profits are you talking about?