The stock market lives and dies on risk. By the looks of the S&P 500 stock index near all-time highs, investors are hungry for risk.
But it’s not a blind appetite.
Consider the case of one of the largest initial stock offerings in years — Uber. The ride-hailing service went public in May. This was before the spectacular and self-imposed implosion of WeWork, another sharing-economy wunderkind. WeWork failed to get to the public market while Uber was able to sell more than 1.6 billion shares. The sale valued Uber at over $75 billion.
It is just over $50 billion as Uber prepares to release its quarterly financial results on Monday afternoon in the week ahead. This will be the company’s third financial update as a public firm. It has been a troubled ride for shareholders.
Uber stock is down 25 percent since it started trading. It continues losing a lot of money. While revenues have been increasing in the low double-digits compared to a year earlier, losses have been jumping in the low triple-digits as spending accelerated.
Uber’s chief competitor, Lyft, also continues losing money. But when Lyft spoke with its shareholders on Wednesday, it focused on its “path to profitability.” Lyft said it expects profitability to arrive by the end of 2021.
Uber inherited its role as poster child of a corporate ambition valuing growth over profits. Amazon held that role for years. Amazon shareholders benefitted from a market environment that rewarded such ambition. But the market appetite for that risk has waned. Investors are turning attention to real profits, not the promise.
Uber’s challenge is both an operations and a perception challenge. It needs to show shareholders that revenue growth is quickly picking up while its losses are narrowing fast. As a barometer of market risk, it needs to convince investors that its business model will arrive at profitability.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM, where he’s vice president of news. Twitter: @HudsonsView.