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Uber mirrors Amazon in penchant for spending

SAN FRANCISCO — Uber Technologies, a start-up with losses that have outstripped revenue, is drawing fresh comparisons with another tech giant that has a reputation for spending: Amazon.

The logo of car-sharing service app Uber. Photo: Reuters

The logo of car-sharing service app Uber. Photo: Reuters

SAN FRANCISCO — Uber Technologies, a start-up with losses that have outstripped revenue, is drawing fresh comparisons with another tech giant that has a reputation for spending: Amazon.

Uber had an operating loss of US$470 million (S$633 million) on US$415 million in revenue in an unspecified time period, based on information shown to potential investors in the ride-sharing service. An Uber spokeswoman has called the numbers “substantially old”.

Getting Uber’s car-booking app up and running in cities around the globe is not cheap. Its major costs include international expansion, subsidising rides in new markets, recruiting drivers, hiring engineers, leasing offices and building a lobbying operation.

Similarly, Amazon has favoured hefty investments in delivery services, new businesses and data centres to woo customers and make its service indispensable — instead of focusing on profit growth.

Venture capitalists and academics have said Uber’s business demands scale and density within cities — it requires many people placing orders for rides on their smartphones, and many drivers to come and pick them up.

That is something it can build only through aggressive spending on marketing, operations and ride subsidies, and it could take years until San Francisco-based Uber knows whether its business model is sustainable on a global scale.

Amazon is becoming a popular point of comparison for Uber. For years, the online retailer has been building warehouses and data centres, adding new products and vendors, and offering new services such as media streaming in a bid to keep customers engaged on its website and reliant on its services.

Amazon’s operating expenses are almost equal to what it generates in revenue. In the first quarter, the Seattle-based firm reported a US$57 million net loss.

Operating expenses of US$22.5 billion were just short of the US$22.7 billion it had in sales.

Like Amazon, for now, Uber is forgoing profits in favour of revenue growth. The ride-sharing service and its investors are betting that as it adds customers in new cities and tests new features such as messenger services and food delivery, the six-year-old company will become profitable.

That is why the start-up is raising so much money — it has a valuation of US$50 billion — and growing internationally so quickly.

Uber’s plan to hook customers on its mobile app in new cities includes keeping the cost of rides low. Sometimes, the fare collected from a rider is less than what Uber pays the driver.

International expansion is another primary expense for Uber. While rival Lyft has stayed within the United States, Uber is raising a pool of money just to compete in China.

The company is also spending money to experiment and innovate with logistics and new product lines, such as trying to figure out how to move around food, not only people.

Uber’s model is “Business 101”, said Uber spokeswoman Nairi Hourdajian, “You raise money, you invest money, you grow (hopefully), you make a profit and that generates a return for investors.”

However, Mr Anand Sanwal, chief executive officer of venture-capital researcher CB Insights, said: “If you’re spending more than you’re making, it’s hard to say the model is proven.” BLOOMBERG

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