An IPO, or an Initial Public Offering, is when a private company decides to go public.

Why would a company do this? Many reasons, but two are 1) to show fundamental success and 2) a needed increase of cash flow by selling of their securities

Uber, the car-sharing company just became public. It is a company that many say is reinventing the taxi space.

It is a new, cute and revolutionary business model. Hire independent drivers, set up appointments via your cell phone through phone apps and the Internet, and voila! Your ride is waiting outside.

The private money world loved this idea. And investors kept pouring more money in and the company got bigger. Uber, by the end of 2018, in the private world, according to Wall Street, was valued at $120 billion. Yes, billion.

But in the “public world,” at least before 1996 for most, “profits” mean more than income or revenues. And with Uber, its new financial valuations (now public) show a loss not a profit! In 2017, it showed a $2.2 billion loss while in 2018 it slowed, to a $1.8 billion loss.

Now, just looking at these numbers above, you would think ( and they have) that the Uber sales pitch has been: “We’re almost at profitability invest in our company and change the world.”

Bang. On Friday, May 10, the first day of it’s public opening, the stock went down…badly! The first day opening of a loss of eight percent was the worst showing of an IPO in almost a decade.

Now, in theory, there is nothing wrong with losing money, especially at its start-up phase. Of course, one wants to generate as much revenue as possible. As of its new public filing, Uber says it has 91 million users. But now, of course, comes the harder end: to maintain expenses, with some being currently out of their control like gasoline prices, car insurance, and interstate government regulations. And, of course, some of these can be controversial.

In New York, for example, the City Council is trying to regulate Uber to fit into its current “car transportation” rules while Uber has stated the government should not over-regulate the business. So what is Uber’s best defense? To get their word out via marketing. Oh oh, marketing is another expense taken off the revenue.

While I am not a big fan of private transportation, as a financial advisor, I have watched this company carefully, not just from a money perspective, but also from an employee/business model point of view.

But I also know as an educator, I learned something myself: Revenues – Expenses = Profit or Loss.

Simple math, right? This is one reason, in layman terms, many people use one of the two bi-weekly checks to pay all of their big-item bills to ensure at months-end that their income at least matches their overall expenses.

And if Uber has not achieved that in the private world, is there any evidence that they will achieve this in the public world?

Well, that’s as far as I’m going to go in this column regarding Uber. An eight percent drop the first day is rough. Who knows what the stock will be by the time you read this article. It could be higher or lower.

But the advice I will give in general is this: While stock market picking and timing is, of course, very difficult and should only be handled by experts, one can still use fundamental sense: If your own checkbook doesn’t balance, what makes one think the future looks good? That old style thought of thinking applies still to me, when I look at client asset allocation: from the private world to the public world. To AT&T to the bodega on the corner. To the Wall Street business to the hard working couple just getting by, revenues are important. Users are important. Profits are MORE important.

We wish Uber luck! The Internet revolution is still on and moving up–the problem with Uber, in our opinion–so are gas prices, car insurance and eventually labor costs.