NEW YORK (Reuters Breakingviews) - Uber Technologies is no Amazon.com. Some of the ride-hailing firm’s boosters have pushed a comparison with the e-commerce giant in roadshow meetings for the company’s imminent initial public offering, according to news reports. The idea is that hefty losses now are laying the foundation for a future profit juggernaut. Instead of the income statement, though, investors should look at cash flow numbers.
Uber, led by Dara Khosrowshahi, is racking up tremendous losses. Its accumulated deficit since its founding in 2009 totaled $7.9 billion at the end of 2018. It estimates it lost another $1 billion in the first quarter this year. The hope is that subsidies to drivers and passengers help the company grow and dominate what could be a winner-take-most market. Once that happens, Uber will be able to raise prices and reduce incentives. And if and when autonomous vehicles arrive, eliminating drivers could result in hefty profit margins.
The Amazon comparison initially hangs together. It took Jeff Bezos’ firm some seven years to deliver its first profitable quarter, and more than a dozen years for accumulated earnings to wipe out earlier deficits.
Yet Amazon needed little outside funding. It raised less than $10 million initially and a bit over $50 million when it floated, plus nearly $2 billion in convertible debt during the dot-com boom. That’s a relatively light demand for capital. Bezos managed to finance most of his company’s growth with positive cash flow: Customers pay first, and Amazon can reimburse most vendors later. The firm’s operations threw off cash in its first quarter as a public company in 1997, and operating cash flow has been positive on an annual basis since 2002.
In contrast, Uber’s operations burned nearly $6 billion over the past three years, and there’s no reason to suspect that will change any time soon. Rivals such as Lyft are competing aggressively for market share. And hefty R&D expenditure, as well as expansion in new areas like meal delivery and freight, may accelerate Uber’s cash burn. It has plenty of funds on hand – more than $10 billion of net cash after the IPO, according to the latest draft prospectus. But in one important way the company’s voracious appetite for cash makes it almost the opposite of Amazon.
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