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Comment by mikestew | Hacker News Reader

I'm trying really hard to think of a recent IPO of a profitable company. Companies in 1998 had "actual revenues and profits", Pets.com was just not one of them. I worked at Microsoft during that time, and they were making money hand-over-fist. Pretty sure Oracle was raking it in. Hell, even Sun wasn't looking bad. Same deal today: MSFT is still making it by the semi-load, Apple is still making me money (and a dividend, which you weren't getting in 1998). I could go on.

But you're not wrong, there is a difference: crap like Uber doesn't shoot to the moon on opening day. Or, as you put it, people aren't throwing money at them, hence Uber (et. al) still sitting under IPO price. That's what I think might save us from a repeat of early 2000s. Hair stylists aren't giving me stock advice these days, either.

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“crap like Uber doesn't shoot to the moon on opening day”

I think the main reason for this is that all the upside and speculation has already been taken by earlier investors and an IPO is done only when there is basically no upside left. In 1998 Uber would have gone IPO much earlier and retail investors would have driven up the price, not the VCs as it’s done now.

What’s common is that we have a lot of companies who don’t even have the slightest idea how to become profitable other than a miracle happening.

Not sure how this will end but judging from 2002 and following it won’t be pretty for a lot of people that are flying high in the current market.

This is correct. In the 90s you’d do a round or two or private capital and then go public. It was also a lot better for early employees... you can probably hold out 5 years for a liquidity event... 10 seems highly unlikely.

Microsoft famously had a single venture investment for what amounted to less than 10% of the company (but did get a board seat).

It was Bitcoin/ICOs/etc. that really felt like Bubble 1.0 to me with (literally) a Lyft driver I had thinking about getting into it.

And lots of people pretty sure the whole thing was a bubble but almost feeling compelled to jump in anyway.

I'm not saying there won't be a correction at some point but you're mostly not seeing the wild price increases in the absence of any fundamentals and, in fact, the market seems to have mostly said "meh" to the Blue Aprons, WeWorks, and Ubers of the world.

While a bunch of people have thrown their personal wealth into crypto speculation, it hasn’t been what has driven the stock price of the stars of today. Regulators have been somewhat good on locking down obvious frauds including the gazillion ICOs that happened a few years ago.

In summary, smarter investors and better regulation seems to have kept the market in check, for now.

The troubles start when a sizable chunk of the market suddenly goes underwater, disrupting existing supply chains and shaking investor confidence and predictability. Those events have not yet occurred.

I think it’s fair to mention that none of those companies you brought up were tech companies, strictly speaking. They utilized technology, but that wasn’t their main product. Even the MVP of Uber could be made by one programmer over a weekend.

Yeah, I had a strange day off (2018 presidents day?) and went to the local pub and ran into the bartender and 2 customers talking about investing in BTC. I was kinda intrigued, but when I figured out that they didn't even know what a blockchain was, much less how one worked... I got pretty sad. I told them that at least BTC was off its high, but nothing more than a gamble. At least ETH was doing something interesting. I tried describing what a hash was and telling stories about Fred Merkel to distract them.

Uber did not shoot to the moon because all the gains were made in the private instead of public market.

Today's companies , even if they have losses, are cash-flow positive. They are operating at a profit but reinvesting those profits on large capital expenditures, which produce losses. This is similar to Amazon, Tesla, Netflix, and Salesforce.

> I'm trying really hard to think of a recent IPO of a profitable company.

Zoom and Twillio.

> I'm trying really hard to think of a recent IPO of a profitable company.

Zoom and Pager Duty. To your point, everything else has been meh.

PagerDuty lost over $12 million last quarter. And if you bought the stock in June, you'd have lost more than half your money.

I think you are caught up in the fact that a company MUST be profitable to IPO. That is simply not true. Just because these companies are not profitable does not mean they are not stable self sufficient businesses. Amazon pioneered the idea that you do not need to be profitable, in fact you can lose money every single day, month, year, for the sake of growth. We do not know if these "companies have the ability to turn profitable if they want to, but my bet is they probably can. Not to rant, but this is prime example why people like Bezos and Buffet want to get away from the quarterly reporting, it just doesn't do a good job of letting companies lose money in the sake of growth it is WAY to focused on profit over growth.

You are not a stable self sufficient business if you are not profitable.

This isn't true; reporting profits is to a large extent a choice that a stable self-sufficient for-profit business can make every year. If you have some reliability in predicting your revenues, you can time investments or expenditures to offset them and run a for-profit company in a stable way without ever (or rarely) reporting profits.

And of course there are a number of stable self-sufficient businesses who never report profits; in fact they are called nonprofits. The Sierra Club was founded in 1892, for example.

Profitability is having revenues you can predict and time expenses around. Non-profits are out of scope.

Call it what you want, revenue, profits, whatever, you are not sustainable if you don't bring in more than you spend.

If you have high fixed costs, say to produce high-quality films, and you can grow your audience 40% per year with reasonable marketing expenditures, you have little chance to "bring in more than you spend" for several years until your subscriber base is large enough to cover the high fixed costs.

If you spend more on marketing than the customer lifetime value, or if you have high churn, then yes, you have a failed business. But if you have reasonable marketing, high growth, low churn, then you will have a fairly incredible money printing machine in the future. And there are many people willing to give you $10 now if you promise a portion of this future profit machine!

That's not GAAP profitability. R&D and sales appear as operating expenses and get deducted from revenue before net income.

This matters a lot for software businesses with recurring revenue (i.e. most SaaS businesses). With software, you build the software once and then you have an asset that you can sell a potentially infinite number of times, for many years into the future. The engineering salaries for building the software count as R&D, and get deducted from the current year's income statement. Then you sell the software, which may take an expensive consultative sales process but signs up a customer who will continue paying monthly for several years. The sales expense is recorded in the current year, but the revenue is booked over several years.

The metric you're looking for is unit economic profitability, and specifically for B2B software businesses, LTV - CAC. If this is positive, then you are making more for each customer you sign up than it cost to sign them up, and you have a sustainable business (at least until the competitive landscape changes, which is a risk every business faces). This is not the same thing as GAAP profitability: if you know that you have a product that makes $5 in revenue for every $1 in sales you put in, it makes sense to raise as much capital as possible, hire as many salespeople as possible, and get every possible user using the software before a competitor comes out. That will look like a money-losing business under GAAP, because for every dollar that comes in this year you might be spending $2 in sales. But the part that's missing from the GAAP statement is that next year you have 4x as many customers who will continue paying you money at no additional cost to you. At some point, when the growth curve flattens, you just lay off the salespeople and milk the existing customers for everything they're worth. This is the story of Oracle, Microsoft, Cisco, and now Facebook and Google.

VCs know to look for these metrics (along with growth rate, net promoter score, engagement, and churn, which are proxies for CAC and LTV). The general public does not, and they're not required in SEC disclosures or normal accounting statements (which generally predate the SaaS business model).

The thread seems to be about actual profitability, not accounting metrics.

A business is either fundamentally profitable and sustainable, or it isn't.

If you run a nonprofit, what do you do if you have money left over at the end of the year? Why, you call it a surplus! (I was once told)

> Amazon pioneered the idea that you do not need to be profitable, in fact you can lose money every single day, month, year, for the sake of growth.

Amazon has reported profits almost every year since 2003 (the only exceptions are 2012 and 2014). The loss accumulated in 1994/2002 was $3bn ($4.3bn adjusted for inflation). Uber has been losing over $3bn per year since 2016 ($15bn so far).

Salesforce is a better example of this,that kept going in negative,while at the same time buying companies left and right.I think it took them good 15 years before they showed profit. However,this is a deliberate and I'd say quite smart business decision.

Is it? Salesforce reported annual profits starting in 2004, the year of the IPO (it was founded in 1999). Accumulated earnings were already positive in 2008. It had a good run of GAAP profitability (2004-2011) before losing much more than it had earned before in 2012-2016.

I assume that's true, but you're missing the perspective that 2003 was well after the crash, and to someone who lived through it and generally aware but not an expert, it really seemed like they would never make money, their stock had cratered, and they were just staggering on a bit longer than other dotcom flameouts. I mean, that was the picture you got from the financial press (remember when Apple was always described as "troubled" or "beleaguered"?)

> Hair stylists aren't giving me stock advice these days, either.

But they are going to coding bootcamps.

The main difference is that hair stylists don't have any money to invest these days.

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