Uber and the Economics of Winning in Tech
The Illusion of Tech Sector Attractiveness: When Winning Destroys Value
Attribution: this post was inspired by Harris Kupperman (‘Kuppy’) of Praetorian Capital.
Uber (UBER) was founded in 2009, riding the wave of the smart-phone revolution, and went public a decade later on May 10, 2019.
On the surface it appears to be a winner, but is it really?
Gross bookings and revenue are growing at around 20% a year, and costs are increasing much more slowly than the top line, which means that operating leverage is finally showing up in the numbers.
Yet, it took the company until FY2023 to break into the black. Finally, after 14 years, it stopped bleeding capital.
Profits are now compounding faster than revenue, and the business has evolved into something close to a transportation utility within the digital economy.
The numbers look encouraging. In 2025, Uber generated $5.6 billion of operating income on roughly $29.5 billion of invested capital, equivalent to a pre-tax return on capital of around 19%. That’s a respectable outcome, but it only captures a snapshot in time. It doesn’t paint the full picture.
What makes the story more complicated is the path it took to get there. Investors absorbed years of losses, relentless cash burn, and continuous dilution before the company finally produced meaningful returns.
Uber’s accumulated losses peaked at $32.8 billion in 2022 and it hasn’t worked that deficit off yet. At the end of FY2025, the net losses still stood at $10.4 billion.
What does this mean in real terms?
The essence of any investment is to turn one dollar today into more than one dollar tomorrow. It is about planting a seed and watching it grow into a wonderful tree. Yet throughout its 27 year life, Uber has destroyed way more capital than it has created.
And the story may not be finished. There is still scope for the company to reverse course and drop back into the red.
Consider this: autonomous vehicles may reshape the economics of the industry all over again. If self-driving technology becomes commercially viable at scale, it isn’t clear which platforms consumers will ultimately use to access that robo-taxi network. Uber may need to reinvent itself once more. If that happens, margins could compress, investment requirements could rise sharply again, and the cash burn cycle may restart.
There is something unsettling about a company achieving global dominance with Uber’s scale, brand, and global reach while consuming so much capital and struggling with profitability.
Uber is not an isolated case. This is a common phenomenon across the technology sector more generally.
Most people have used Twitter (now X) at some point.
It arrived at exactly the right moment. Social media was absorbing more and more of people’s attention and Twitter offered something differentiated from platforms like Facebook. The product spread in popularity as real-time information, open conversation, and distribution at scale all became compressed into a single network.
Twitter went public in 2013 at roughly $45 per share. Nine years later, Elon Musk acquired the company, taking it private, at approximately the same price.
In nominal terms, shareholders earned nothing across almost a decade of ownership. The company never paid a dividend and, after inflation, investors effectively generated negative real returns despite owning one of the most culturally influential platforms of the internet era.
There is little doubt the platform created enormous value for its users. It shaped politics, media, finance, culture, and public discourse for more than a decade.
But creating value for users and creating value for shareholders are not always the same thing. For an investor, if Twitter was a technology winner, what does losing look like?
Remember Napster? Long before Spotify existed, Napster fundamentally changed consumer behaviour around digital music consumption. Adoption exploded. Yet the business still ended with Chapter 11 bankruptcy protection having generated liabilities that far exceeded assets.
3dfx pioneered dedicated 3D graphics accelerators for PCs. Its Voodoo products helped define PC gaming in the late 1990s. Technological leadership didn’t save it from insolvency. Its assets were eventually sold to Nvidia.
Jawbone built highly desirable Bluetooth devices and fitness wearables. Venture capital funded aggressive expansion and at one point it achieved a private valuation above $3 billion. But costs outran the economics of the business. The company was eventually liquidated.
Pebble helped pioneer the modern smartwatch category and ran one of Kickstarter’s most successful campaigns. Demand was real. The product resonated. But revenue never kept pace with spending and the company ultimately failed.
The grave-yard of the tech sector is littered with failed businesses that had hugely successful products and services.
While a small number of tech companies generate extraordinary returns, the vast majority fail, at least economically.
That is the contradiction at the centre of the technology sector. The great dilemma for the investor. Invest for fear of missing out, and risk an unfavourable geometric skew, or simply sit it out and allocate capital to other sectors with a better risk/reward profile.
The underlying innovation often creates enormous societal value. Consumers gain better products, lower costs, faster services, and entirely new capabilities. But the investors who financed that progress frequently capture little of the economic upside themselves.
In many cases, their capital effectively subsidises the technological advancement and the true beneficiaries are not the innovators, but the second and third generation adopters of that technology.
Think about Xerox. It was responsible for pioneering many groundbreaking computer technologies, including the GUI, the computer mouse, Ethernet networking, laser printing, and the first personal computer (the Alto). However, it failed to effectively commercialize and capitalize on its key innovations, which were later adopted and popularized by other companies like Apple, Microsoft and Dell (second generation beneficiaries).
This is nothing new. Early investors in railroads funded massive track expansion in the 1800s and investing heavily in capacity during a speculative boom , driving returns down through competition, high fixed costs, and price wars. Many went bankrupt or earned poor returns despite creating invaluable infrastructure. The real winners came later; businesses that used that infrastructure. Without bearing the upfront capital risk, it becomes far easier to succeed economically. Companies like Sears and Standard Oil scaled nationally using cheap transport.
More recently in the 1990s the first wave of telecom firms laid excess fibre network capacity and many collapsed (e.g. Global Crossing). Later, internet companies like Google, Amazon, and Netflix thrived on that cheap bandwidth. Builders absorbed the capital risk; users captured the economic upside.
The pursuit of outsized returns can obscure the scale of risk involved when investing in new technology. Investing in this sector is often treated as a pathway to exceptional wealth creation, but the failure rates tell a different story.
Tech companies face materially higher risks than businesses in most other industries. Reported five-year failure rates are estimated at roughly 63%. For comparison, the next worst sector is construction, a cyclical and operationally difficult industry, yet the failure rate there is significantly lower (~34%).
That raises an uncomfortable possibility: technological advances may structurally favour consumers over investors. Sure, Uber and Twitter are winners having developed platforms that have gone viral creating huge amounts of utility for their users. But if this is what winning looks like, investors should ask themselves whether the game is worth playing.
