Former unicorns Coinbase, Robinhood openly struggle with profitability.
The current pivot to profitability in the world of venture-backed firms is far from unprecedented. What is new is the degree to which the bloody details of the finances of companies in past unicorns such as Coinbase and Robinhood are now publicly available.
why does it matter: A private company can struggle quietly without its investors having to take any kind of write-off to the end. When your financial statements are public, your suffering becomes public, too.
- The market for initial public offerings last year flooded the listings — and associated public scrutiny — on hundreds of unprofitable companies.
How it works: When interest rates were low and liquidity plentiful, young companies realized that they could raise large sums of money with billions of dollars in valuations if they invested as much as possible in future growth – a very costly strategy sometimes known as erroneous scaling.
- This strategy burns huge amounts of cash, and it tends to end in disaster if the flow of money stops before the company becomes profitable. (Exhibit A: WeWork.)
- Now that money is more expensive and less plentiful, it has stopped flowing to almost all of these companies.
IPO It does not mean that you are at home free. Robinhood, which raised $2.1 billion in its 2021 initial public offering, is a good example.
- This week, the millennium-focused broker-dealer reported $295 million in losses in the second quarter and laid off 23% of its workforce — just months after cutting 9%. So far in 2022, more than 1,000 of its employees have lost their jobs.
- Or watch yesterday’s WSJ and NYT stories on Coinbase.
the other side: And IPOs a little early found they had enough time, before the music stopped, to start making money.
- Airbnb announced this week that it has become so profitable that it can spend $2 billion to buy back its stock.
- Even the famous cash-burning Uber announced it was cash-flow positive in the second quarter — although it still took a loss after accounting for things like stock compensation and its equity investments in other companies.
- “This marks a new phase for Uber, its self-financing future growth,” said Nelson Chai, Uber’s chief financial officer, in a statement.
Bottom line: All tech stocks that were once flying have seen their valuations plummet. Those cuts are much lower for the likes of Airbnb and Uber, however — down 19% and 36% respectively since Robinhood’s IPO date — compared to companies like Robinhood, which has lost more than 70% of its value in its time. as a public company.