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FORTUNE.COM // JULY 2019
AT THE END OF MAY, WHEN UBER FILED its first earnings report as a public
company, the ride-hailing titan revealed it had an impressive $3 billion
in revenue for the quarter. Trouble is, it had spent just over $4 billion to
produce it.
Earlier in that month, Uber’s road rival Lyft, which also went public
this year, revealed an even bigger splotch of red ink—$1.1 billion worth,
on $776 million in revenue—in its debut quarterly report. That net loss,
as it happens, was nearly five times the size of the $234 million hole it
had dug in the same period of 2018. (Progress.) And then there’s Tesla,
which has lost a cumulative $6.6 billion since 2006. Investors, for their
part, are currently rewarding it with a $40 billion market cap.
It has become all but axiomatic that to succeed in the new economy,
companies have to spend with abandon; in burgeoning marketplaces that
quickly morph into winner-take-most, startups have no choice but to grab
whatever share they can, as fast as they can, and box out the competition.
They have to triple down on technology, on marketing, on top-tier talent
because, after all, that’s what Apple did. And Amazon. And Google.
Except, dear readers, it wasn’t.
That’s what Fortune’s Shawn Tully discovered when he went back
through years of financial statements for Apple, Amazon, Google (now
Alphabet), and Facebook (please see “The Biggest Burners” on page 35).
“It turns out the assumption that successful tech companies burned lots of
cash in their youth isn’t merely wrong—it’s staggeringly wrong,” he writes.
Shawn calculated the free cash flow (cash generated from operating
activities minus capital expenditures) of these giants back to their pre-
behemoth days and found that Google—quite strikingly—had apparently
never been cash-flow negative. Apple and Facebook, meanwhile, had
just fleeting periods when they lived beyond their means. And Amazon,
which is most-often cited as the exemplar of “spend money to make
money,” was also far more frugal than today’s unicorn-chasers realize.
Even in the periods when its free cash flow was negative, the burn rate
was modest compared with total sales.
In business, as Shawn’s terrific analysis proves out, nothing bursts
the conventional wisdom quite like math does. And Exhibit B in this
maxim is this issue’s cover story—Aric Jenkins’s wonderful tale of the rise
and fall and ... could it be? ... rise anew of virtual reality (beginning on
page 42). Five years ago, when Facebook shoveled out $3 billion to buy
VR headset maker Oculus, it seemed to many of the technoscenti that
virtual reality would be the next dimension for global recreation. Venture
capitalists rushed to finance VR
startups—investing more than
$850 million in 2016—only to
see the market fizzle for lack of
consumer interest.
Again, here’s some math:
Last year, Oculus shipped just
354,000 units of its flagship
headset, according to one indus-
try watcher—which is equivalent
to about 2% of the 17 million or
so PlayStation 4 consoles Sony
sold during the same period.
Why the fizzle? The clunky
gear and the lofty price points
played a part, Aric explains. But
the real limiting factor was the
lack of a good reason to wear
that clunky gear and pay those
prices: The applications just
weren’t engaging enough to ab-
sorb players day in and day out.
That may at last be changing,
however. As Aric reports, VR has
upped its game—and a number
of developers have found some
compelling enterprise-related
uses for the tech, too.
It just may be that virtual real-
ity is the real thing, after all. But
I’d suggest you read Aric’s feature
before you take that first plunge.
CLIFTON LEAF
Editor-in-Chief, Fortune
@CliftonLeaf
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