The Uber’s $4.5 billion

The Uber’s $4.5 billion

Two numbers from the 2017 Uber leaked results: $7.5 billion and $4.5 billion. The former is the revenue while the latter is the loss. Yes, Uber lost about 13% of the total value of the Nigerian Stock Exchange. Yet, someone (SoftBank) saw those numbers and still pumped hundreds of millions of dollars into Uber as investments. Largely, the reasoning might have been: you need huge loses to build massive customer base, in order to trigger the positive continuum of network effect, and then afterwards, you could define the ride-sharing business category as a king. The loss amount is huge; closing that would take Uber years.

But in America, it is nothing but a number. After all, one man, the pioneer of the shale gas phenomenon, spent nearly four decades to perfect the process. To do great things, losses, most times, abound. NASA knows that to leave the solid bounds of earth, and touch the face of heaven, it would experience losses as it builds its space program. That is the culture: Number 1 or no trophy.

Uber’s just-released year-end results make the wildest of companies tough to ignore. Let’s start with two numbers: $7.5 billion and $4.5 billion. The former is Uber’s 2017 sales, according to multiple reports Tuesday, when Uber shared results with investors. It’s a giant number. Were Uber a public company, which it has said it wants to be, such results would rank it No. 367 or so on the Fortune 500 list of the biggest companies in the U.S.

Here’s the thing about the Fortune 500, a list designed to show the industrial and financial might of the American economy: Most of the companies on it make money. Not Uber. It lost the latter number, a staggering amount. “There are few historical precedents for the scale of its loss,” writes Bloomberg’s Eric Newcomer.

This is the clear difference between how American firms build companies and how we in Africa do. The massive level of resources they have access to makes it nearly impossible to have any fair level of competition. Anyone working in ride-sharing startup in Nigeria must have a big heart. Sure, all visions are commendable including building ride-sharing app business; it is free enterprise.

But be warned: Uber could decide to lose $100 million in Nigeria just to take over the market. That is the dilemma which many investors deal with as they decide to invest in African startups. The thinking is thus: what would happen if Google, Facebook or Uber shows interests? Can this startup have the capacity to raise new capital to hold its grounds? Answering those questions would not be easy. Essentially, your best prayer is for these ICT utilities not to show interest in your sector. Yeah, you can still battle, but you would need to be open to lose tons of money. Even Naspers, Africa’s largest corporation by market value, has shown that it cannot do that: it got out of Konga and OLX few days ago. It could have sustained losses since it is evident one day, the flip would happen, and ecommerce would blossom.

The Question

I get this question many times from people: why can’t our entrepreneurs build companies like Apple, and Facebook to fix Nigerian challenges? Of course, if Nigeria has Apple, our forex problem would disappear because “Nigerian apple” could work with the Central Bank of Nigeria and sell it dollars. In other words, if the “Nigerian apple” has dollars outside Nigeria through sales, it could do trade by barter with CBN, exchanging Naira locally for dollars externally. That external fund can be used by CBN to settle foreign obligations despite whatever money sales of crude oil may be providing.

Possibly, one day it may happen. I do have confidence that there are brilliant people in Nigeria with capabilities to build great firms. Yet, for that to happen, many things would be condition-precedent. Those conditions do not just happen; they have to be nurtured. Nigeria needs to begin to make them happen.

All Together

Yes, getting to the numbers where a company can lose billions of dollars in a year, perhaps to cover write-downs, compensation expenses tied to stocks, legal costs and depreciation, would require a redesign. The numbers from Uber show the brilliance of America. You do not lose $4.5 billion irrespective of your revenue and open shop the next day, easily. But in America, it has been normalized as a way of pursing world domination. They do it, and we need to learn to adopt same techniques at lower scale. But good luck for finding such investors in Africa. Typically, most of our investors expect profits after few months. That has to change; yet, you need to respect the investors for asking their terms for the capital they control. That is what makes this a free enterprise: do it in such a way that positions you for success.


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2 thoughts on “The Uber’s $4.5 billion

  1. This hits at the very core of organization growth. While growth is the corporate tonic for companies, aspiration for domination creates strategic options and fire that ignites investment for that growth.

    Reply
    1. Absolutely – America does it at the best. The words are iconic “aspiration for domination creates strategic options and fire that ignites investment for that growth”. In a networked and connected world, a local vision is a stunted vision because those pursuing the world would certainly come.

      Reply

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