High burn will keep you from exiting, just like Uber

Three weeks ago it was reported that Uber had operating losses of $800mm in Q3 and is on track to burn through $3bln for all of 2016.  A number of pundits commented that given the burn, the company is a long ways away from an IPO.  Those comments made us curious: so long as you’re growing quickly, what is the level of operating loss Wall Street can tolerate before an IPO? To find out, we crunched the data from 82 major public tech companies since 1995.  The data is below.

 

      LTM or 9mo Operating
Company Year Op. Loss/Profit Revenue Margin
         
Ecommerce        
Amazon 1996 -$5,979,000 $15,746,000 -38%
Alibaba 2013 $1,730,000,000 $5,553,000,000 31%
         
SAAS        
Ultimate Softare 1998 -$16,060,000 $17,592,000 -91%
LivePerson Inc. 1999 -$3,582,000 $286,000 -1252%
SalesForce 2003 $2,143,000 $81,536,000 3%
Netsuite 2006 -$2,268,900 $67,202,000 -3%
Athenahealth, Inc. 2007 -$3,324,000 $86,914,000 -4%
Medidata Solutions 2007 -$493,000 $86,274,000 -1%
BroadSoft, Inc.  2009 -$5,051,000 $68,887,000 -7%
LogMeIN, Inc. 2009 $565,133 $59,001,292 1%
RealPage, Inc. 2009 $6,929,000 $140,902,000 5%
SPS Commerce, Inc. 2009 $23,493,000 $35,845,000 66%
Cornerstone 2010 -$12,840,000 $43,731,000 -29%
Intralinks 2010 -$2,162,358 $146,007,000 -1%
LinkedIn 2010 $12,499,000 $200,736,000 6%
BazaarVoice 2011 -$19,704,000 $64,482,000 -31%
Demandware 2011 -$756,000 $56,547,000 -1%
Jive Software, Inc. 2011 -$35,587,000 $60,973,000 -58%
Lifelock 2011 $4,843,000 $193,949,000 2%
Proofpoint, Inc. 2011 -$18,975,000 $77,186,000 -25%
Qualys, Inc. 2011 $2,906,000 $76,212,000 4%
ServiceNow 2011 $80,218,000 $128,072,000 63%
Splunk 2011 -$9,397,000 $100,542,000 -9%
Benefitfocus, Inc. 2012 -$14,400,000 $81,739,000 -18%
Cvent, Inc.  2012 $7,900,000 $83,474,000 9%
Marin Software 2012 -$22,720,000 $53,917,000 -42%
Marketo 2012 -$34,208,000 $58,413,000 -59%
Textura 2012 -$16,774,000 $21,681,000 -77%
WorkDay 2012 -$89,138,000 $199,128,000 -45%
Castlight Health 2013 -$62,339,000 $12,973,000 -481%
2U 2013 -$28,006,000 $83,127,000 -34%
Five9, Inc.  2013 -$28,322,000 $84,132,000 -34%
MobileIron, Inc. 2013 -$31,849,000 $105,574,000 -30%
RingCentral, Inc. 2013 -$37,907,000 $135,941,000 -28%
Veeva Systems Inc. 2013 $36,157,000 $167,953,000 22%
Zendesk 2013 -$21,833,000 $72,045,000 -30%
Appfolio 2014 -$8,559 $47,671,000 0%
Box Inc 2014 -$158,780,000 $124,192,000 -128%
HortonWorks 2014 -$78,762,000 $35,270,000 -223%
Hubspot 2014 -$35,556,000 $93,830,000 -38%
Match Group 2014 $228,567,000 $888,268,000 26%
MindBody 2014 -$26,950,000 $76,620,000 -35%
Nant Health 2014 -$84,680,000 $33,921,000 -250%
New Relic, Inc. 2014 -$40,792,000 $85,002,000 -48%
Shopify 2014 -$21,615,000 $105,018,000 -21%
Acacia 2015 $31,123,000 $211,521,000 15%
Atlassian 2015 $417,000 $319,521,000 0%
Instructure 2015 -$54,452,000 $56,678,000 -96%
Secureworks 2015 -$61,093,000 $262,130,000 -23%
Xactly 2015 -$15,469,000 $61,111,000 -25%
Twilio 2016 -$32,965,000 $192,894,000 -17%
         
Payments        
Square 2015 -$144,980,000 $1,038,884,000 -14%
Paypal 2000 -$173,064,000 $14,460,000 -1197%
         
Social        
Facebook 2011 $1,756,000,000 $3,711,000,000 47%
Linkedin 2010 $12,499,000 $200,736,000 6%
Twitter 2012 -$92,900,000 $448,209,000 -21%
Line 2015 $18,667,867 $1,151,237,086 2%
         
Marketplaces        
Priceline 1998 -$112,790,873 $35,236,860 -320%
Zillow 2010 -$6,837,000 $30,467,000 -22%
Groupon 2010 -$420,344,000 $713,365,000 -59%
Shutterstock 2011 $22,890,000 $120,271,000 19%
Angie's List 2011 -$38,244,000 $70,152,000 -55%
Sabre 2012 $846,100,000 $3,039,060,000 28%
GrubHub 2013 -$8,307,000 $47,524,000 -17%
Care.com 2013 -$26,686,000 $74,902,000 -36%
Etsy 2014 -$6,251,000 $195,591,000 -3%
Lending Club 2014 -$10,360,000 $148,213,000 -7%
Opentable 2007 -$856,000 $41,148,000 -2%
         
Content Distributors      
Netflix 1999 -$30,031,000 $5,006,000 -600%
Yahoo 1997 -$23,145,000 $40,335,000 -57%
Google 2004 $413,081,000 $1,172,618,000 35%
Pandora 2010 $3,189,000 $113,960,000 3%
Yelp 2011 -$8,431,000 $73,654,000 -11%
Netscape 1995 -$11,241,816 $5,433,462 -207%
Excite 1996 -$44,118,000 $14,030,000 -314%
TrueCar 2013 -$22,628,000 $133,958,000 -17%
         
Gaming        
Zynga 2011 $147,890,000 $731,953,000 20%
King Digital 2013 $714,275,000 $1,884,301,000 38%
         
Hardware        
TiVo Corporation 1999 -$18,496,000 $8,000 -231200%
Garmin Ltd 2000 $114,092,000 $296,731,000 38%
GoPro 2014 $80,503,000 $966,396,000 8%
Fitbit 2015 $232,073,000 $973,372,000 24%
         
         
Median   -$9,878,500 $83,803,000 -17%

 

The result: the median operating loss and revenue before IPO of the 82 companies was -$9.8mm and $84mm, respectively. The largest level of operating loss in a year was Groupon, which lost $420mm on revenue of $713mm.  That’s roughly 14% of Uber’s expected $3bln loss for 2016.  Uber is indeed a long ways away from being IPO ready.

 

In case you missed it, the scoop on Uber is as follows: according to Bloomberg, “in the third quarter, Uber lost more than $800 million, not including its Chinese operation.” That is a staggering figure as the company is on track to lose $3bln this year.  On top of that, the growth isn’t clear: “net revenue—the amount of money Uber generates after it pays its drivers—was $1.7 billion in the third quarter, growing from $1.1 billion in the second quarter and $960 million in the first.”  The Q2 to Q3 growth rate at 55% is great, but the Q1 to Q2 growth rate of 15% is just ok given the premium valuation, and those growth figures include China which is now gone.  So not only is Uber’s $68 billion valuation a premium 10x annualized Q3 net revenue, the company is burning $3bln a year and the growth rate isn’t clear and consistent.

 

We should all learn from Uber that growth at any cost is not ok and while investors may be ok with burn so long as you’re growing, there are limitations.  

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