Despite their impressive valuations and market dominance, tech’s new stars, including Uber, Lyft, and WeWork, struggle to turn a profit. Uber, valued at $100bn, is yet to make a profit, while Lyft, despite a strong debut on the stock market, reported losses of $911m in 2018. WeWork, valued at $47bn, posted losses of $1.9bn last year.
These companies have expanded rapidly, fuelled by cheap capital, but their business models rely on continued expansion to drive revenue. This approach has led to a rise in costs, outpacing revenues and resulting in losses. Their path to profitability remains uncertain, with some analysts suggesting these firms may never achieve profitability.
Unlike tech firms of the past, these companies face intense competition, which forces them to continually invest in growth, further eroding their profit margins. They also operate in highly regulated markets, which increases operational costs and limits their ability to scale.
Their lack of profitability raises questions about their long-term viability, particularly in an economic downturn. Investors, however, remain optimistic, betting on their ability to eventually turn a profit and dominate their respective markets. Despite the risks, these companies continue to attract significant investment, reflecting the high-risk, high-reward nature of the tech industry.
Go to source article: https://www.economist.com/leaders/2019/04/17/techs-new-stars-have-it-all-except-a-path-to-high-profits