The recent collapse in the Uber share price prompted the company to introduce plans to become “the Amazon of the transport industry”. This has prompted a number of leading analysts to look at the comparisons between Amazon and Uber and see whether this really is the case.
Initial losses
In the early days, when Amazon was effectively ignored by the stock market, the company amassed hundreds of millions of dollars in losses. In the early days Uber has amassed billions of dollars of losses since inception. While some would argue the multiples have changed since Amazon was a fledgling, there are other issues which need to be taken into account.
Investment
A number of experts have highlighted the fact that Amazon invested billions of dollars in technology in the early days to build a “moat” around the company. This would effectively give the company significant advantages over competitors in the future. The problem with Uber is the fact that billions of dollars have been spent defending legal actions, fighting competition and training drivers who could simply leave the company tomorrow.
There is an argument to suggest that Amazon was investing in nuts and bolts technology while Uber has not been so focused on this area of the business.
Continued losses
A decade after inception Amazon was making tentative profits, while a decade after inception Uber is still making multibillion-dollar losses. It was very clear from an early stage that when Amazon “turned off the investment tap” the profits would flow. It was the company’s ongoing investment in technology in the early days which effectively held back profitability. At this moment in time nobody knows when/if ever Uber will post profits and move into profitability on a long-term basis.
Potential disruption
There is no doubt that Amazon has disrupted the e-commerce market and while fees have detracted some potential customers from listing products, it has been by far and away the most successful e-commerce business in history. Even though Amazon is disrupting various parts of the e-commerce market, it is arguable whether it will have any real influence outside of this area. The situation with Uber is a little different!
Uber is looking to disrupt the transport sector as a whole not just hail and ride taxis. The company is already talking to take away companies. There may even be the opportunity to partner with some of the larger fast-food companies. However, is it dangerous to diversify at such an early stage?
Diversification
If you put Amazon to one side for the moment, let’s compare Uber and Tesla, two groundbreaking companies which have certainly disrupted their markets. While Uber continues to talk about expansion and diversification, is this really the most sensible route? If we take a look at Tesla, one of the most volatile shares on the market, there is no doubt the company has paid the price for investing in diversification. There is a sense that Tesla is now refocusing on core operations but whether the damage is done with regards to financials and reputation is open to debate. Maybe Uber could learn a lesson from the Tesla experience?
Conclusion
There are certainly similarities between the Amazon and Uber growth stories and the fact that Uber is behind the curve compared to Amazon may well be a sign of the times and changing markets. Those behind Uber still believe the company will make a profit although competition is now significant. Would Uber make a profit if it turned off the “technology investment taps” as its counterpart Amazon did?
At this moment in time we suggest not – far greater capital is being invested in beating the competition, legal challenges and training drivers. Important but is this laying solid foundations for the future?