“You’ve got to spend money to make money” is one of the most widely accepted business adages of all time. And nowhere is that belief more innate than in Silicon Valley, where companies like Tesla, Uber, Lyft, and Snap command dizzying valuations based on the belief that one day, they will indeed make money. Raising fresh billions to fund operations, boosters of these companies would have us believe, is a regular rite of passage. After all, didn’t giants like Amazon, Apple, Facebook, and Google also burn through tons of cash on their path to profitability?
Fortune decided to find out: How much money did Amazon, Apple, Facebook, and Google spend in their early years? And how does that compare with what today’s hot names are spending? To get the numbers, we went back to each company’s earliest published financial reports, starting with the offering statements for its IPO.
It turns out the assumption that successful tech companies burned lots of cash in their youth isn’t merely wrong—it’s staggeringly wrong. Look closely at the early days of the giants—the Fab Four, as we’ll call Amazon, Apple, Facebook, and Google (now Alphabet), and you’ll see that they were models of frugality compared with the new wave (which we’ll dub the Breakneck Burners: Tesla, Uber, Lyft, and Snap).
It’s true that in the dotcom frenzy of the early 2000s, many tech companies posted losses while devouring new funding. But the ones that burned piles of cash were such failures as Webvan and eToys.com, not winners like Google. Today, says accounting expert Jack Ciesielski, “you’ve got these companies chewing through mountains of cash, and investors are comparing them not with the failures of the dotcom era but with the survivors.”
For this analysis, the crucial measure isn’t net profit but “free cash flow” (FCF), calculated by taking “cash generated by operating activities” minus capital expenditures (capex). In other words, business income minus money you spent to grow your business.
The differences are stark. Let’s start with Google. Amazingly, the company appears never to have been significantly cash flow negative. Similarly, Apple never showed negative free cash flow starting with its first full year in business and weathered only short-lived deficits as a mature player. Facebook showed just two years of negative FCF (in 2007 and 2008, when it burned $143 million).
At Amazon, long the poster child for taking losses today to earn profits tomorrow, the numbers seem almost quaint. The new venture had negative FCF of $10.6 million from 1994 to 1997, but that was just a fraction of total sales. The only major underwater span in its history came from 1999 to 2001, when negative FCF totaled $813?million. But by 2002, Amazon’s FCF turned positive. All told, the Fab Four had total negative free cash flow in their early years of almost exactly $1 billion.
展望：在今年5月公司期待已久的IPO發售聲明中，Uber公布了2016-2018年的自由現金流數字。2016年，Uber來自運營的現金為負29億美元，資本開支為16億美元，也就是45億美元的負自由現金流。自那之后，這一差額一直在收窄，但仍然是個不小的數字，因為公司一直在向客戶提供價格補貼，并投入大量的資金用于推出 Uber Eats送餐服務，此舉讓2018年和2019年一季度的營銷費用分別提升了25%和54%。經紀公司D.A. Davidson的湯姆·懷特向《財富》雜志透露：“Uber最近良好的營收和訂單業績為自己爭取了一些時間，但到今年年底，投資者會開始把2020年看作是希望之年，也就是Uber應該能夠在盈利方面取得一些實質性的進展。”他還說，如果Uber在接下來的幾個季度并沒有做到這一點，投資者將“感到沮喪或失去耐心”。
展望：2016年，Lyft燒掉了4.96億美元的自由現金流。自那之后，這一態勢也只是稍有改善。2018年，缺口略有收窄，降至3.5億美元，然而今年一季度又達到了 1.1億美元。Lyft屬于輕資產公司，但公司依然在一些基礎性項目方面投入了大量的資金，例如司機費用、保險、研發和營銷，以至于運營虧損一直在不斷擴大。Wolfe Research公司的丹·加爾福斯指出，Lyft近60%的業務都來自于人口密集的市區市場，但這些地區的家庭數僅占美國家庭總數的5%。他指出，這些都市區的年增速已經降至24%，只有2018年年初的一半。加爾福斯還表示，高昂的司機成本“幾乎相當于整個營收額”。他對Lyft在大城市之外的廣泛吸引力表示懷疑。
By contrast, the Burners have already torn through $23.9 billion, encompassing 22 years of FCF deficits and outspending the Fab Four by around 20 to 1. At this pace, will they ever reward investors? Here’s the outlook for each.
Cash burn (total negative FCF): $10.9 billion over 12 years.
Outlook: Negative FCF ballooned to $4.1 billion in 2017 but narrowed the following year to a (comparatively) modest $222?million. The reprieve was short-lived, as Tesla began to spend heavily to ramp up production of its mass-market Model 3. In the first quarter of this year, sales tumbled, and FCF fell to minus $945 million, forcing Tesla to raise $2.4?billion in equity and debt funding. Morgan Stanley’s Adam Jonas shocked the markets by lowering his previous “bear case” for Tesla’s stock price from $97 to $10, citing dangers of slowing sales in China. Jonas warned that declining overall demand is pushing back the date when Tesla will be able to fund itself from operations.
Jonas’s price target (all targets are for 12?months from now): $230
Current price: $216
Cash burn: $8.9 billion over three years (not including losses from earliest years).
Outlook: In the offering statement to its long-awaited IPO in May, Uber revealed FCF numbers from 2016 through 2018. In 2016, Uber posted negative cash from operations of $2.9?billion and spent $1.6?billion in ?capex, for a negative FCF of $4.5?billion. Since then, the shortfalls have been shrinking, although they have remained substantial as the company has offered price promotions to customers and spent heavily on the launch of its Uber Eats food-delivery service, raising sales and marketing expenses by 25% in 2018 and 54% in Q1 of 2019. Tom White of brokerage D.A. Davidson tells Fortune, “Uber has bought itself some time with good recent performance on revenue and bookings. But by the end of this year, investors will start thinking of 2020 as hopefully the year where meaningful progress is made toward profitability.” If quarters keep slipping by without concrete progress, he adds, investors “will get discouraged or impatient.”
White’s price target: $46
Current price: $42.33
Cash burn: $1.36 billion over three years and one quarter (not including losses from earliest years, which were not specified in the IPO prospectus).
Outlook: In 2016, Lyft burned $496 million in FCF, and since then, the trajectory has improved only slightly. The shortfall shrank a bit to $350 million in 2018, but in Q1 of this year, it stood at $110?million. Lyft is asset-light, but it’s still spending so heavily on such basics as driver pay, insurance, R&D, and marketing that operating losses have continued to mount. Dan Galves of Wolfe Research points out that Lyft depends on dense urban markets for nearly 60% of its business, despite those areas making up only 5% of U.S. households. And annual growth in those metro areas, he reckons, has slowed to 24%, half the rate in early 2018. Galves also cites high driver costs that “are taking almost all the revenue” and doubts that Lyft will win broad appeal outside the big cities.
Galves’s price target: $52
Current price: $58.32
Cash burn: $2.72 billion over four years (not including losses from earliest years, which were not in IPO filings).
Outlook: Snap is still burdened by big research expenses, equal to one-third of its total costs, and R&D needed to expand its photo-sharing platform is expected to jump to over $900 million this year. Additionally, it’s instructive to look at how much cash Snap is burning in relation to all the money it collects marketing its service. From the start of 2017 through Q1 of this year, Snap had $2.33?billion in revenues and churned through 73% of that amount, $1.71?billion in cash. Michael Pachter of Wedbush notes that although user and revenue growth is impressive, “the road to profitability appears to have gotten longer.” He’s concerned that big spending on ?infrastructure and R&D has pushed back the date when Snap will show positive Ebitda to at least Q4 of 2020.
Pachter’s price target: $12.25
Current price: $13.62
A version of this article appears in the July 2019 issue of Fortune with the headline “The Biggest Burners.”