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FORTUNE.COM // JULY 2019
THE BIGGEST
BURNERS
Today’s hot tech stocks may seem to have a lot in
common with their now-huge forerunners. But those
titans never burned cash like this. By Shawn Tully
“ 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 stagger-
ingly wrong. Look closely at the
early days of the giants—the Fab
Four, as we’ll call Amazon, Apple,
Facebook, and Google (now Al-
phabet), and you’ll see that they
were models of frugality com-
pared 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
INVEST
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), calcu-
lated 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 neg-
ative. Similarly, Apple never showed negative
free cash flow starting with its first full year
in business and weathered only short-lived
ILLUSTRATION BY CHRIS GASH
