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Unprofitable IPOs Are Getting Bigger

Morning Markets: Going public and being profitable continue to drift further apart as unicorns make their way to the public markets.

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Here are some things that are true: A goodly number of tech companies are going public this year. Many of them were valued at $1 billion or more while private. The IPOs have often been long-awaited. And, the companies in question are often quite unprofitable.

This creates a rolling conundrum, where hype meets quite a lot of reality. Uber’s IPO, for example, was going to be a big deal regardless of what its numbers showed. They did, however, show a huge amount of red ink and slowing growth. So, the conundrum came into play. Unicorns have been long-awaited, but what happens when that which you have waited for still loses money?

The answer, of course, is that the unicorns still go public, but are just worth less than they wanted. Or much less, in the case of Uber.

Notably, even with the situation being roughly what we’ve described, the unicorn IPO run is bringing companies so large to market that their public debuts are skewing the stats on unprofitable offerings. According to a new report from YCharts this morning, the number of unprofitable companies that are also part of the 25 largest IPOs during the current cycle is staggering:

Now think about 2019, and Uber.

Uber and Lyft and Pinterest posted huge, unprofitable debuts, so we can put those into the 2019 column. I wonder if we’ll see a higher, final tally from this year’s IPO crop when it comes to the percentage of the largest IPOs that feature unprofitable companies, but the trend is very clear. More, large, profit-free public offerings.

Not that we didn’t see this coming. It’s just that today news dropped that private sector employment growth is slowing at the same time that the current American president is firing off tariffs like a cure-all from the 1800s. So are these unicorns getting out now because it’s time, or because it soon won’t be?

Regardless, here’s what’s coming up in IPO-land. I’m excited.

Illustration: Li-Anne Dias.

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