Covering tech startup IPOs generally involves writing about companies that lose money.
Sure, there are exceptions. Blockbusters, like Google, which was minting search advertising cash well before its IPO. Or, more recently, companies like Instacart or Klaviyo that tapped public markets shortly after turning a modest profit.
But in most cases, even the most valuable one-time venture-backed technology companies went public before turning profitable. While they eventually made money, it often took a while.
How long? That’s the question we set out to explore, with an eye to gauging investors’ tolerance threshold when waiting for a public company to produce net income. We focused on companies that went public after 2000 and are currently among the very large cap stocks.
Here’s what we found.
It’s common to wait several years
Today’s high-flyers took some time to grow into their current valuations, and investors often waited a few years for them to turn profitable.
One of the more recent entrants into the now-profitable club is Uber, which went public in 2018 and posted its first annual net income in 2023. In tandem, the ride-hailing and delivery giant’s shares have been doing well this past year, with the company’s market cap recently hitting around $150 billion.
Palo Alto Networks, with a market cap around $115 billion, also took a while to become profitable. The security provider, which made its market debut in 2012, first reported an annual profit in fiscal 2018.
E-commerce platform Shopify, which had a recent market cap around $100 billion, needed some time as well. The Toronto company went public in 2015 and looks to have posted its first profitable year in 2020.
Meanwhile Palantir Technologies, which was founded in 2003, took 20 years to post its first annual profit in 2023. However, it waited until 2020 to go public, so the most patient investors were those who backed it as a private company.
Exceptions may be made for exceptional companies
Some ultra-high-valuation companies took an unusually long time to get to profitability as public companies. In the interim, they benefited from well-known brands, a high buzz factor and long-term shareholders who believed in the business model.
One famous example is Tesla, which went public in 2010 and reported its first profit in 2020. Even before it posted a profit, Tesla ranked for years as the most highly valued global automaker by market cap, due to its image as a pioneer in the mass market for electric vehicles.
Salesforce 1,the sixth-most-valuable public software company, is another late-bloomer for profitability. The company went public in 2004 and reported its first annual profit in the fiscal year ending Jan. 31, 2017. With billions in annual revenue prior to then, however, the CRM giant had no trouble convincing investors of its prowess at sales.
Growing revenue make losses much more tolerable
It sounds a bit obvious to point out, but investors are far more willing to tolerate net losses for companies with high revenue growth. Shareholders can also distinguish between a company that is hopelessly in the red and one that likely could turn profitable but chooses instead to invest in growth.
Amazon, which went public in 1997 and turned its first annual profit in 2023, is the classic example of the latter. Founder Jeff Bezos was well-known for emphasizing growth over near-term profitability, betting that market share would accrue to the e-commerce player with free or low-cost delivery and competitive prices. He turned out to be right.
Among currently unprofitable tech companies, Snowflake stands out as one that has been able to grow fast, post large net losses, and sustain a high valuation for some time. However, it hasn’t been an entirely smooth ride. Shares took a hit last week, for instance, after Snowflake posted higher revenue but a wider net loss of $318 million.
What time-to-profitability means for unicorns and boom-era IPOs
The question of years-to-profitability seems timely now due to the massive backlog of tech unicorns that are still private. To launch successfully, those that are not yet profitable will probably have to convince investors they will be in a few years.
Annoyingly, it’s rather tough to say what shape private unicorn financials are in, given that they don’t have to publicly share their earnings. That said, companies that are solidly profitable often like to trumpet that fact. Since we are seeing few unicorns touting their net income, it’s not unreasonable to think most are still in the red.
Related reading:
Illustration: Dom Guzman
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