Silicon Valley is rife with start-ups billing themselves as the Uber of X or the Amazon of Y. It's easy to see why. Both companies have grown rapidly and have disrupted their respective industries, making life measurably easier for consumers along the way.
Though Uber by definition is the Uber of transportation, even it isn't immune from the need to compare itself to larger companies. CEO Dara Khosrowshahi loves drawing comparisons between Uber and Amazon, the company that started life as an internet bookseller and now has its tentacles in everything from cloud computing to voice-activated technology to logistics.
In investor presentations ahead of its upcoming IPO, Uber management has repeatedly likened the company to Amazon. Here is a sampling of the Uber chief's statements on the link:
- "Cars are to us what books are to Amazon. Just like Amazon was able to build this extraordinary infrastructure on the back of books and go into additional categories, you are going to see the same from Uber."
- "We want to kind of be the Amazon for transportation."
- "Just like Amazon sells third-party goods, we are going to also offer third-party transportation services."
On a superficial level, the two companies do indeed have some things in common. Both have expanded at a breakneck speed and been unafraid to diverge from their original business lines. Both companies have also prioritized market share growth over profits.
But overall, Khosrowshahi's analogy is flawed. Here's why.
Books aren't cars
Khosrowshahi wants investors to think of cars being to Uber what books were to Amazon -- a beachhead from which to expand into a vast range of products and services. There's a problem with that analogy.
Books make up just a sliver of the retail industry. Once Amazon had the infrastructure necessary to stock and ship books to customers, it behooved the company to add other inventory. Cars, on the other hand, account for the vast majority of transportation in the U.S. and much of the world. When it comes to transportation, cars are the thing, and Uber needs to further disrupt the traditional car ownership market in order to succeed.
Yes, the company has parlayed its core ridesharing service into Uber Eats (a food-delivery service) and Uber Freight (a trucking logistics service), and has taken stakes in scooter and bike companies. But those segments pale in comparison to the size of its ridesharing business. Furthermore, it's hard to see how Uber would effectively disrupt other forms of transportation like mass transit or air travel.
An app connecting supply with demand, Uber's singular innovation, is no longer a novel concept, and dozens of companies have tried it in other industries. Hence all the start-ups that have branded themselves as the Uber of private jets or whatever else.
Losing money is not a virtue
Money-losing companies love to draw comparisons with Amazon, which has generated slim profit margins for most of its history. But Amazon's reputation as a money-losing company, or even a break-even one, is often exaggerated.
Amazon never lost as much money as Uber is losing now. Uber has reported operating losses of more than $10 billion over the last three years and had a $3 billion operating loss in 2018. Factoring in interest expense, it would have had a $3.7 billion loss before taxes last year, but a gain on investments gave Uber a GAAP profit for the year.
For comparison, Amazon's biggest annual loss came in 2000 when the dot-com boom was turning into a bust. It reported a net loss of $1.4 billion that year but an operating loss of only $863 million. By 2004, the company had a profit of $587 million.
By contrast, Uber has yet to face a recession, and its massive losses today come as the American economy is surging. Additionally, its revenue growth has slowed to just around 20% in its most recent quarter, a decidedly unAmazonian pace. In 2000, Amazon's revenue grew by 68%.
The brand problem
Unlike Amazon CEO Jeff Bezos, Khosrowshahi did not found the company he leads today. He was brought in to replace Uber co-founder and former CEO Travis Kalanick. Kalanick led the company's dramatic growth, but also got Uber into trouble by flouting local regulations, by allegedly stealing Google's intellectual property, and by developing a corporate culture that many saw as sexist and abusive.
Kalanick was booted in 2017, but arguably the brand still stings from his tenure. During the Muslim travel ban at the beginning of the Trump administration, a #DeleteUber campaign spontaneously erupted after the company was perceived to be breaking a taxi strike at New York's JFK airport. The backlash against Uber seemed to emerge more from Uber's reputation as a bad corporate citizen than from any event that day. The event was a gift to rival Lyft, which grabbed market share from its larger rival immediately after the campaign and has continued to do so since then, a sign that Uber's negative brand image has persisted.
Amazon, on the other hand, was founded by Jeff Bezos, who promised to run the company for the long term from the start. Amazon has been a darling in customers' eyes since and regularly ranks at the tops of customer satisfaction polls.
A lack of competitive advantage
What's distinguished Amazon's success more than anything else is the company's ability to build a range of competitive advantages. It's parlayed its e-commerce business to create its Prime loyalty program, a third-party marketplace and fulfillment network, and even Amazon Web Services, its massively profitable cloud-computing business. The reputation the company earned for low prices and excellent customer service early in its history has paid off time and again over the years.
Uber, on the other hand, has little discernible competitive advantage aside from its brand and network of drivers. At this point, the company looks like it could be on the losing end of the autonomous-vehicle revolution. And the fact that it's losing market share to Lyft shows that its brand and driver base aren't enough to give it a competitive advantage.
Join the club
There's a reason why so many companies compare themselves to Amazon. The tech giant is widely admired and seen as visionary company, as is Jeff Bezos, its founder and CEO. Amazon is now worth nearly $1 trillion, and the company has made early investors rich, returning about 100,000% since its 1997 IPO.
So many companies want to be like Amazon for the same reason that basically every NBA team wants to be like the Warriors: They're really successful. But sinking a three-pointer doesn't make you Steph Curry, and aggressive growth and a sprawling business model don't make Uber -- or anyone else -- Amazon. There's a reason why no other company has been able to repeat Amazon's feat in the last 25 years: It's really hard to build a business the way Amazon has.
Investors should ignore Khosrowshahi's Amazon comparisons and focus on Uber's core fundamentals. There, you'll find a business losing billions of dollars a year with rapidly slowing revenue growth and declining market share in its home market.
While Uber's potential in food delivery, freight logistics, autonomous vehicles, and other areas may appeal to some investors, it's hard to justify a valuation near $100 billion based on its current numbers and trajectory, no matter how you add it up.
If you want to invest in the next Amazon, skip the Uber IPO and just buy some Amazon shares.