These familiar names still aren’t profitable.
When a company is private, it has a variety of options for accessing new funds via venture capital — all without the scrutiny of the U.S. Securities and Exchange Commission. When a company goes public, the sudden influx of capital from investors around the world can offset the hassle of increased regulation, even if a company goes public while it’s still unprofitable. It may seem counterintuitive to offer stock to the investing public when a company is losing money, but it has worked before; Amazon.com (ticker: AMZN) was famously unprofitable for 14 long years after its initial public offering in 1997, and today it’s a global online retail behemoth. What about the other companies that have been on the market for years now and have yet to see a dime reach their bottom lines? Are they the next Amazon, or should investors avoid these six unprofitable public companies?
Uber Technologies (UBER)
Founded in 2009, the biggest name in ride-sharing went public a decade later to the tune of a $75 billion valuation, making Uber one of the biggest IPOs in market history. Rather than focus on the bottom line, investors have loved the long-term potential of Uber’s revolutionary business model — but that model has failed to produce profits. Back in February, management announced that its plan to cut costs would bring about better margins, and therefore profits, by the end of 2020. But a global pandemic has probably put off profitability once more, as fewer riders hopping in Uber cars sent mobility revenue down 67% year over year in the second quarter. Although the company’s food delivery segment was a bright spot last quarter with an impressive 103% gain in revenue, that wasn’t enough to offset the incredibly high costs associated with it.
Lyft is yet another ride-hailing company that promised its investors profits ASAP, announcing in October 2019 that it would be profitable by the end of 2021. Things have changed dramatically since that announcement, but the company is sticking to its word despite a 61% decline in year-over-year revenue for the second quarter thanks to a 60% decrease in active riders. Unlike its competitor, Uber, with its delivery service, driverless cars, package delivery and more, Lyft’s business model is a bit more streamlined. While being focused entirely on ride-sharing is clearly not a great business to be in during a pandemic, it may allow Lyft to reach profitability faster than Uber, with its costly acquisitions and expensive delivery costs — but recent legal problems in the California market could derail those plans and continue to keep Lyft in profit limbo.
The hype behind social media stocks is usually enough to push investors into buying shares of these companies on presumed future results. Pinterest was no different during its IPO in April 2019, with no profits but a lot of promise; when it went public, Pinterest had roughly 250 million monthly active users, which is a pretty good start for a company that makes its money from internet advertising. These days, Pinterest has a lot more eyeballs looking at its ads. Last quarter, the company announced that monthly active users had grown by 39% year over year to 416 million, increasing second-quarter revenue by 4%. People stuck at home during the pandemic are looking for inspiration and ideas for activities and home improvement, and Pinterest is there to help — which means that profitability is likely closer than ever.
Snap went public in March 2017. In the 14 quarters since, only once has it posted a profit. That was back in the fourth quarter of 2019, but instead of capitalizing on this brief period of positive earnings before interest, taxes, depreciation and amortization, or EBITDA, Snap slid back into the red during 2020, with a $96 million adjusted EBITDA loss during the second quarter. The problem isn’t users, as Snap saw its daily active user count increase an impressive 17% year over year last quarter. The problem is costs. While year-over-year revenue grew 17% last quarter, operating expenses grew 19%; meanwhile, its average revenue per user remained flat. If the company can ever tame these expenses and improve its ability to profit from users, it may very well become unstoppable.
Zillow Group (Z)
Zillow shareholders were skeptical that the real estate website would ever reach profitability after committing to its Zillow 2.0 initiative. The idea was that not only would Zillow be a platform that provides users with so-called Zestimates and connects them with real estate agents, but it would also be a place for users to buy houses directly. “iBuying,” as this business is known, is a risky and costly proposition — yet so far, Zillow has knocked it out of the park, enjoying an 82% year-over-year increase in revenue from its Zillow offers segment. Impressive strength in the housing market led to these big gains and helped diminish Zillow’s generally accepted accounting principles, or GAAP, net loss to a mere $84 million, putting the company on the verge of profitability. Shareholders are suddenly a lot less skeptical these days, and Zillow’s stock is up more than 100% this year.
Slack Technologies (WORK)
Slack has yet to see the benefits of a work-from-home boom hit its bottom line. The company posted a net loss of $73 million in the second quarter of fiscal 2021, which is far better than the $360 million it lost in the same quarter last year. The problem is twofold: First, Slack’s top-line growth hasn’t really accelerated in recent quarters. Yes, revenue did increase an impressive 49% year over year in the second quarter, but that is down from 50% growth in the first quarter — and it’s exactly the same as revenue growth in the fourth quarter of fiscal 2020. The second problem is operating expenses — though Slack has begun to get those under control — which declined by 46% last quarter. If Slack can reduce that number even further, the company may finally be able to capitalize on its revenue growth and achieve profitability.
These six famous companies still aren’t profitable:
— Uber Technologies (UBER)
— Lyft (LYFT)
— Pinterest (PINS)
— Snap (SNAP)
— Zillow Group (Z)
— Slack Technologies (WORK)
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6 Famous Public Companies That Still Aren’t Profitable originally appeared on usnews.com