Do investors really care about profitability? Maybe not
We’re hearing a lot about the drive for tech companies to generate a profit. We’re starting to think that’s all noise. As an example, Uber just reported their first profit ever and shares actually fell, presumably because growth was soft. Below are some of the financial highlights of their quarter (skip down three paragraphs if you don’t care).
Finally profitable. Uber achieved “our first-ever GAAP operating profit of $326 million and our first quarter of free cash flow over $1 billion, all the while delivering record platform engagement, strong top-line growth, and a new all-time high of $15.1 billion in total earnings for drivers and couriers on the platform.”
Although profitable, margin is weak. Operating profit as a percent of total revenue is only 1%.
Overall growth is just ok with delivery slowing overall growth down. Gross Bookings grew 16% year-over-year to $33.6 billion. Mobility Gross Bookings were $16.7 billion, up 25% YOY. Delivery Gross Bookings were $15.6 billion, up 12% YOY. Trips during the quarter grew 22% YoY to 2.3 billion, or approximately 25 million trips per day on average.
While Uber is just one example of a company hitting profitability and the market barely blinking, we do believe it’s relevant for the point we’re trying to make: growth matters, and sacrificing growth for profitability is not the way forward. So long as you’re growing cash efficiently (which means you’re still burning), the customer keeps coming back after being acquired (so they look like an annuity), we would advise that you stay the course. Creating value is about generating a long term sustained return on the customer investment (ROI), not just profitability today. Uber is a real example that it’s not ok to sacrifice growth for profits.
If you are growing cash efficiently, investors like us will have a check for you, and we believe many other investors feel the same, especially in venture.
Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at blossomstreetventures.com and email directly at sammy@blossomstreetventures.com. We invest in companies with run rate revenue of $3mm to $30mm, with year over year growth of 30%+. We lead or follow in growth rounds and special situations like inside rounds, small rounds, rushed rounds, corralling investors with our term sheet, cap table clean up, and extensions. We can commit in 3 weeks and our check is $1mm to $4mm. Also visit https://blossomstreetventures.com/metrics/ for always up-to-date SaaS metrics.
