Why Amazon’s History Of IPO-Era Losses Means Little For Today’s Unprofitable Unicorns

Morning Markets: As Uber and Lyft struggle in the public market, some argue that Amazon’s history of losses proves that persistent deficits are pretty ok. It’s not a good argument. Let’s explore.

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It’s raining excuses in Silicon Valley as two of the largest companies born in recent years have gone public to raspberries. Cheers had been expected.

Uber and Lyft have seen their share prices erode after going public. The question that follows is simple, is that so bad? Aside from the obvious “yes,” there is an argument to the contrary bouncing around that’s worth our consideration.

It goes something like this: Amazon lost a lot of money before and after it went public. Its later success shows that deficits aren’t so bad, right? It’s a compelling argument to hear, but not one to explore because it falls apart under examination.

We could write a paper on this subject together, but since we have to wrap under the 1,000-word mark (lest we run out of Internet), we’ll just compare Uber and Amazon.

Here’s how they stack up. Or don’t.

Comparables?

Let’s start with a copy of Amazon’s S-1 from 1997, a document that’s a delight to read (we have more here on the S-1 filings of the Big 5). A quick look at the company’s IPO filing uncovers lots of growth and pretty modest losses.

Amazon grew from no revenue in 1994 (the year it was founded) to $511,000 in top line in 1995, to revenue of $15.7 million in 1996. Over those time periods, its net losses expanded from $52,000 to $303,000 to $5.78 million. No huge surprises there, we knew that Amazon grew like a weed, went public early, and lost money along the way.

Drilling into its quarterly results reported at the time of its IPO, Amazon’s revenue grew its revenue from $4.2 million in Q3 1996 to $8.5 million in Q4 1996. Its net losses fell over the same time period from $2.4 million to $2.3 million. Those figures indicate that the young company was reporting doubling revenue in sequential quarters coupled to (for a time) falling losses when it debuted. That’s goshdarn impressive.

To generate a useful comparison, let’s look at the comparable two quarters from Uber’s S-1 filing (we’re setting aside its preliminary Q1 2019 results, meaning we’re examining at its finalized Q3 an Q4 2018 results): Uber grew from $2.944 billion in revenue in Q3 2018 to $2.974 billion in Q4 2018. Its net losses fell from $986 million to $887 million over the same time period. Notably, Uber’s operating losses rose over the same interval, while its net results were helped by a $322 million income tax benefit.

So, Uber did manage a sliver of growth during its most recent, fully reported two quarters, and slipping losses thanks to a tax bump. But its results are far from what Amazon put up. The retailer was growing lots more quickly and lost so much less.

At this moment you are probably complaining out loud that it isn’t fair to compare the companies S-1 filings’ to contrast their IPO-era results. After all, the ecommerce was far younger than Uber was when it went public. You could argue that we are looking at Amazon while it was exploding north in contrast to a middle-aged Uber. How unfair!

I agree, really. It’s a good point. We should not compare Uber’s IPO to Amazon’s unless you want to make the argument that going public earlier can help a company be more cost-disciplined in time.

Continuing, Amazon’s later losses that it endured while growing were still small compared to how unprofitable Uber is today. Here’s QZ on the matter:

Amazon, the patron saint of money-losing companies, lost a combined $2.8 billion over its first 17 quarters as a public company, roughly on par with what Uber lost in 2015 alone.

We can get an idea of the growth that those periods saw at the Seattle-based ecommerce player. Amazon closed out 1997 with $147.8 million in revenue, up from its 1996 tally of $15.7 million. 1998 saw $610.0 million in top line. In 1999 the firm managed $1.64 billion in sales.

Short Version

There are a few things to keep in mind when folks point out Amazon’s deficits as an argument to waive away other companies’ sticky losses. Here they are, in relation to Uber:

• IPO Age: Amazon was just a few years old when it went public, meaning that its IPO-era losses were put up during its period of hypergrowth. That made them less bothersome. Uber is going public with staggering losses and very little growth.
• IPO Growth Rate: Amazon was doubling at the time of its IPO. Uber’s sequential and year-over-year growth are modest, and slowing.

If you want to claim that Uber’s losses are the same as Amazon’s, it has to grow at the same pace. But at a much older age, it’s still losing buckets of duckets while not posting the same growth. That’s not the same thing, so the comparison is silly. As is the idea that Google and Facebook struggled after their IPOs, so Uber’s struggles are nigh-ordinary.

Finally, Uber was born in 2009. It’s 2019. It’s adjusted profit for the first quarter of this year will be around -$900 million. Amazon was born in 1994. In 2004, the company managed net income of nearly $600 million. And there you have it.