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Comment by sean_patel | Hacker News Reader

> Uber is particularly vulnerable because their latest capital infusion of $1.5Bn is high-interest debt, not equity

Pardon my ignorance, can someone explain this? What is high-interest debt and what is equity and how do they determine risk?

Also I would expect that Uber is profitable since they take a cut per ride, and their overheads should be low (just a bunch of super smart software engineers and cloud hosting, right?). What am I missing? I am young, might be stupid. Bear with me.

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You're not stupid! Uber is less vulnerable than DD (mainly because their margins are higher). But it's still a cost-intensive business. Subsidies, local offices, marketing, it adds up. For reference, see [0], although Uber sold their Chinese business to a competitor soon after that article was published.

Also, equity = shares in Uber. Debt = loans. You have less liability when you take somebody's money in exchange for a % of the company, than when you take somebody's money and guarantee you'll pay it back + interest ;)

[0] https://www.bloomberg.com/news/articles/2016-08-25/uber-lose...

Wow! Thanks for the article and the explanation. Makes sense now.

P.S. If you see this, how different is Amazon? Isn't Amazon also losing millions of $, yet their stock is soaring to all times high?

As I understand it, Amazon's MO has been ploughing all of their profits into capex to expand their infrastructure, so they don't show much profit, despite continually increasing their revenue.

The other key piece is that Amazon's infrastructure investments often double as product R&D since their business increasingly shifts to selling access to their infrastructure vs selling products directly to consumers.

Last time I checked Uber still loses money. It's because they spend a vast amount on marketing both in the form of ads and subsidizing rides to undercut their competition. ie. In certain markets they are paying drivers more than the fare charged to customers would indicate. (Also, uber spends a lot on frivolities like driverless car research and branding redesigns, food delivery, etc.)

This is because Uber believes and has convinced investors it can become a worldwide monopoly by killing off competitors, network effects, etc. But the evidence so far is not supporting that case. Lots of competitors still, lots of markets that are "lost" for Uber.

So the real problem is that in the long run they can easily be profitable, but probably not at a level that justifies their valuation, since what they provide is a commodity. But luckily for them, this won't matter, because they'll IPO and be dumped onto the 401ks of witless Americans long before anyone figures this out.

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