Uber, the ride hailing company expected to go public this year, may enjoy the biggest IPO of all time. But the most valued American unicorn faces a more difficult path to profits than Amazon (AMZN) when the e-commerce giant filed its IPO more than a decade ago.
The two companies share a lot in common. Amazon and Uber are platform companies that deliver products to homes and businesses. Both firms burned a lot of cash to completely upend incumbent industries with lower prices and superior service. They both created a truly on-demand experience that redefined what consumers should expect from Internet companies.
It ultimately took Amazon 18 years to turn a profit. Wall Street, though, was willing to wait because Amazon was (and still is) demonstrating robust growth because of two main reasons: the lack of online competition from incumbent brick and mortar retailers and the emergence of Amazon Web Services (AWS). The successful cloud computing unit bought Amazon valuable time to get its core e-commerce business profitable.
Uber has spent about $10.7 billion in venture capital over nearly a decade, losing an astonishing $4.5 billion. In the third quarter 2018, Uber said revenue rose nearly 40 percent year-over-year to $2.95 billion. But the company still lost more than $1 billion on a GAAP basis.
And yet the company is still entirely dependent on its core ride hail business, an industry that already faces stiff competition from Lyft (which also plans to go public in 2019) and other local players.
“Because Uber has little valuable intellectual property, and local companies and VCs have an incentive to gain a ride-sharing monopoly in their own areas, Uber has spent hundreds of millions fighting well-capitalized local competitors, attempting to drive their revenues down and costs up,” according to a recent report by CB Insights research firm.