How do these tech companies continue operating at a loss every year? Net loss for these companies reach hundreds of millions yet they are still operating till this day
In: Economics
Adding on to what others have said. Running at a loss and actually losing money are two different things. A company can be cash-flow positive, meaning their revenues exceed their expenses, but still lose money. Consider a high-tech startup. Doesn’t have a lot of money, so they pay their employees, at least in part, with stock options. A stock option is simply a promise that at some future date you can buy the stock for a price.
For example, suppose I work for a startup and get a zillion options at $1 each. Later, the company does well, goes public, and the stock is worth $50. I decide to exercise options on 1000 shares (i.e. buy those shares for $1 each) and immediately sell the stock for $50. I have a pre-tax profit of $49,000. By generally accepted accounting rules, that $49,000 profit for me is a $49,000 loss for the company. However, what really happened was I gave the company $1,000. So for that transaction the accountants say the company lost $49,000, but if you just look at the cash flow, the company took in $1000.
There are lots of other reasons why a company can lose money while being cash-flow positive (see “deferred revenue” and “depreciation” as examples).
I don’t know about Uber or Grab, but there are plenty of tech companies losing money while remaining either cash-flow neutral or nearly so.
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