I realize plenty of tech companies IPO and aren’t profitable. But it seems scary to be losing more money than what you generated in total revenues.
REVENUE:
2021: $152m (loss of $192m)
2020: $81m (loss of $130m)
EDIT: reworded for clarity.
REVENUE:
2021: $152m (loss of $192m)
2020: $81m (loss of $130m)
EDIT: reworded for clarity.
In this case https://www.sec.gov/Archives/edgar/data/1653482/000162828021...
The income statement, balance sheet, and cash flow are connected; sides of a triangle.
Each of the three views alone is potentially misleading. But for an initial impression and quick gut check I like to start with cash flow.
It is far less true for consumer/SMB mid market products as cost of leaving there is not high.
I thought so too, but then my enterprise started moving to Github. Hoo boy, that’s a whole different can of worms. Their core functionality is great, but if you need anything outside of that you are shit out of luck.
https://en.wikipedia.org/wiki/Predatory_pricing
And is illegal in some jurisdictions and frowned upon in others.
Not an uncommon VC/PE strategy. Wait two years and see what happens.
Are they losing money on each customer per year? Are they spending a ton on sales that they expect to earn back over a decade per customer plus, but with a huge initial cost.
But is the company “default alive”, as I think Paul Graham calls it? That is, could they cut that spending tomorrow and actually have money coming in that more than covers the costs of keeping the lights on?
The fact Gitlab are recognizing a loss at IPO could have been predicted at the company's inception.
The bronze plan (4/user/mo) was burned and moved into premium (19/user/mo). If you have any sort of moderately active company, going back to free tier is really not an option (the feature reduction would be simply too much, plus a lot of previous ci/cd work would be binned).
[0] https://about.gitlab.com/blog/2021/01/26/new-gitlab-product-...
It takes awhile for a SaaS customer to pass their CAC. But if they do then they should be closer to 80% margin after that.
Sure, it probably will pay back eventually, but as an investor, you really have to be bullish on retention/expansion. to get a reasonable LTV out of that.
Most bulls have been right in the past, but eventually the music stops (look at the tenuous position Slack was in before acquisition).
I've yet to see an LTV calculation at a VC or from FP&A that is even close to reality (Who cares about WACC, even though the capital we raise is actually very very expensive? Why should we consider Gross Margin? What do you mean we can't just take our best cohort?).
But to mirror the fatalistic tone from my other comment, we're in an easy growth environment, so it kind of doesn't matter (until it does).
profit = revenue - costs
For a naive example, a company can have $1m in revenue and $1.1m in costs, therefore profit is negative 100,000 dollars - the company is unprofitable. However, they are not losing more money ($100,000) then they are bringing in ($1,000,000 is greater than $100,000) - though they are spending more money ($1.1m) then they are bringing in. This would not be a concerning amount of loss, many companies are deliberately outspending current revenue in order to increase future revenue/growth/market share, but could become profitable if they wanted to.
In this case, the person you replied to is remarking that the losses/negative profit ($192m, $130m) are greater than the revenue ($152m, $81m). This is a concerning sign, as the path to profitability is much further away.
Second sentence: 'Seems scary ... profit < -revenue'
They have to take customers while they can.
If you are using GitLab in a hobbyist or solo way, you are touching about 5% of the features that GitLab provides. Which is fine and a valid way to use it but its easy to see how customers justify spending big dollars on the top plan with hundreds of user licenses when the tool does so much. We even have customer support and project managers using the tool because it caters to them well.
If you want you can even use gitlab to replace something like zendesk as it provides an email address which puts all emails in to a "support desk" queue.