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Comment by sixhobbits | Hacker News Reader

> We have incurred annual net losses since 2016 and expect to continue to incur net losses in the future. We incurred net losses of $10.2 million and $7.0 million for the years ended December 31, 2019 and 2020, respectively. As of December 31, 2020, we had an accumulated deficit of $35.8 million. We do not know if we will be able to achieve or sustain profitability in the future. We plan to continue to invest in our research and development, and sales and marketing efforts, and we anticipate that our operating expenses will continue to increase as we scale our business and expand our operations. We also expect our general and administrative expenses to increase as a result of our growth and operating as a public company. Our ability to achieve and sustain profitability is based on numerous factors, many of which are beyond our control.

how unusual is it for companies to ipo without profit or even a clear path there?

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It's been standard operating procedure in several high tech industries like biotech for decades. The FDA doesn't allow anyone to charge for anything related to medicine or medical devices until a premarketing application is approved so many biotech companies (if not most, since anything profitable pre-IPO is generally gobbled up by pharma) IPO with zero revenue and their success or failure is entirely dependent on a few binary decisions made by government agencies which ostensibly depend on the strength of the science.

It depends heavily on industry dynamics; in biotech it's not a problem since "product-market fit" is essentially predetermined and there are very few "customers", which are limited to private/public insurers representing patients and pharma companies looking to grow their stock value. In software there is a lot of capital sloshing around because the vast majority of it goes towards payroll which can be scaled up or down on a whim and many times the return on an investment depends not on dividends from profits but acquisitions by other companies looking to move their own stock price (the public version of an acquihire). There's the additional factor that many tech companies have network effects that form semi-monopolies which can be an order or two of magnitude more profitable than competitive industries.

You won't find the same level of unprofitable IPOs in resource extraction, for example, which is subject to the whims of governments, fluctuating prices, and requires massive up front investments. Most of the excess capital goes towards hedging the aforementioned risks so dividends from profit is how money makes its way back to investors. Unprofitable IPOs only really happens when some company signs a big deal for mineral/resource rights with a government and spins off a separate company to raise money to exploit that deal without diluting the main company. If the government is considered reliable to investors, its perfectly normal to throw money in.

Common but it's one of those things that should come with a label on every single ticker or such. As it stands, without any plan or goal to become profitable, investors should acknowlege that they are incurring extreme risk and are investing on concepts outside of any actual plan to eventually turn a profit. To top it all off, they are just crawling Google. Google could potentially shut their entire game down any day. In a different era's market I would expect the SEC to shut it down and ask 'Why are you IPOing?' and 'Is this an attempt to exit from a failing business by misleading investors?'.

That last one is really the kicker here. It's hard to interpret this any other way outside of the current tech boom than "We're failing, have been for years, and are looking for a lifeline here to float us a little further down the river."

I sometimes can't tell if this is just the bright spot right before total collapse, or if we've just entered a completely new business paradigm.

What numbers are you guys looking at? They lost $7M on $125M of revenue. Compared to losing $10M on $92M the year prior. It's not insanely far away from being profitable.

FWIW companies like SEMRush have been scraping Google for years now and have become insanely good at it.

Semrush, Moz, Ahrefs, and others have been scraping Google for more than a decade. I suspect whatever system they have for scraping Google is pretty robust and spreads risk out over lots of different types of proxies.

> Google could potentially shut their entire game down any day

SemRush CEO said that Google would rather sponsor them than shut down.

That kind of analytics increases Google's sales, but Google cannot run such a product without conflicts of interest (providing one ad-buyers information on what doing their competitors).

Amazon reached its first reported profit like 10 years after founding. It's hard risk all the way through with funding needed to pay wages and other fixed expenses. Pretty amazing that people stick to it as long as it takes to become profitable. I'm not so sure my nerves could take all the suspense.

https://en.wikipedia.org/wiki/History_of_Amazon

A lot of companies, and particularly Amazon, always have an easy path to profitability in their back pocket. They simply choose not to be profitable because it means they'll pay less taxes and grow faster. It's a lot easier to "stick with it" with this in mind.

that's an interesting idea, could you comment on some of those deferred profitability strategies? How does that work precisely?

You spend more money than you make to grow revenue and capture market share. Then you try to slowly become profitable over time. It's how nearly every growth company operates, whether it is a startup or public company.

Simply re-invest every bit of profit you would make. Build new locations, new services, hire more people, buy stuff, etc.

Spending money isn't rocket science. Spending it wisely may be.

is it safe to say reinvesting is counted as a loss for tax purposes then? How does the tax angle come into play, taxes are only on profit income not revenues?

Yes, taxes are only on profits. You don’t need a loss per se, you just need to reinvest everything.

The results would be crazy otherwise. Tech makes near 100% margins, grocery about 2%. But both industries would pay the same level of tax on 100% of revenue if it wasn’t profit based.

If you make $100k in profit, you pay 21% in taxes, so it turns into $79k.

If you instead invest that $100k into growth (eg. ads, sales people, marketers, engineers), you pay $0 of taxes, and can ideally generate an additional $200-300k revenue next year because of the investment.

Would you rather have $79k now, or $200-300k next year?

If you always invest, you'll grow faster and never pay taxes. With this in mind, why would these companies want to be profitable?

The major assumption here is that you have a way to invest $x now into $x+ in the future. A lot of SaaS companies have this down to a science via metrics like CAC, payback period, etc.

But SEMRush says this, right there in their report

> We do not know if we will be able to achieve or sustain profitability in the future.

This is a little different than Amazon running at a deficit to avoid taxes while they're consistently growing YoY.

Taken at face value, this is them admitting they haven't been profitable for years and don't know if they ever can be profitable.

Every single S-1 says that from companies like this. It doesn't mean anything

The risk section of an S-1, should be taken with a grain of salt. Half the items there are simply cookie cutter templates that simply provide protection if their stock goes to 0 and they get sued. Here's is the exact same line from coinbase's S1

> Due to our limited operating history, it may be difficult to evaluate our business and future prospects, and we may not be able to achieve or maintain profitability in any given period. [1]

[1] https://www.sec.gov/Archives/edgar/data/1679788/000162828021...

You will also find "risks" such as "if we fail to add new customers, our business will fail."

Not unusual. Look at Blue Apron. https://www.wsj.com/market-data/quotes/APRN/financials/annua...

I think Unity also only had losses when they went public.

very common and the language in here is typical

Uber

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