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  • You'd think every business would want to make a profit.

  • But some of today's most hyped companies are often unprofitable.

  • Think Uber or Tesla:

  • sexy names to investors, but their bottom line is less attractive.

  • Many of these loss-making companies are often alluring to consumers as well.

  • That's because it means dirt cheap rides on Ofo, less expensive holidays on Airbnb,

  • and a whole universe of music for the price of two coffees on Spotify.

  • There's a saying that goes: revenue is vanity, profit is sanity.

  • So, have investors gone insane?

  • Last year, three out of every four companies going public in the U.S.

  • reported a loss before debuting on a stock exchange.

  • The last time we saw a percentage that high was during the dotcom boom in 2000.

  • But if you look at the data over the past four decades, the average percentage is much lower,

  • with less than 40% of companies being unprofitable when they go public.

  • In 1980, just one in four IPOs was not profitable.

  • It's clear the economy has moved on since the 80s.

  • And if you need proof, just take a look at Amazon.

  • The e-commerce giant is the world's second most valuable company by market cap,

  • but it's also known for being light on profits.

  • The company was founded in 1995, went public in 1997,

  • and was unprofitable until the fourth quarter of 2001 - losing $2.8 billion in the process.

  • Its path to substantial profit has been slow, only really hitting the gas in 2017.

  • Its profit jumped dramatically from the third to fourth quarter last year,

  • surpassing the $1 billion mark for the first time.

  • It even hit a record high of $2.5 billion in the second quarter of this year.

  • But when you compare America's largest companies over the last 20 years,

  • Amazon's bottom line is miniscule, even when compared to younger tech giants.

  • Still, Amazon has made its founder Jeff Bezos the richest man in modern history.

  • His net worth is estimated to be more than $150 billion.

  • So why are shareholders backing companies that lose money?

  • A lot of it comes down to the growth of the tech sector.

  • Tech is the fastest-growing industry globally, and that phenomenon means investors are more

  • comfortable with companies that tend to be unprofitable, at least early on.

  • Let's get back to those companies that went public last year.

  • Just 17% of the tech companies were profitable for their IPO.

  • Compare that to 43% of non-tech companies.

  • These startups are being kept afloat by venture capitalists looking for rising stars.

  • They're putting their money on fast-growing companies like office leasing firm WeWork,

  • in hopes of the next big return.

  • WeWork made losses of almost $1 billion last year as it spent on rapid expansion.

  • But it's still valued at almost $20 billion.

  • In London, WeWork has become the biggest occupier of office space, second only to the U.K. government.

  • Its nearly double that of Google, and much, much more than Amazon and Deutsche Bank.

  • That growth story helped it sell about $700 million worth of bonds,

  • although the top ratings agencies classified them as junk.

  • These bonds are considered riskier than their investment-grade counterparts,

  • but they can pay off if it all goes well.

  • Choosing between growth and profitability has always been the multi-million dollar question for companies,

  • but venture capitalists lean towards growth.

  • That's likely because the economy is progressively moving towards a winner-takes-all model,

  • where a few big companies dominate market share and profits.

  • In 2015, just 30 businesses made up half of all public earnings in the U.S.

  • Apple, Google, Amazon and Microsoft alone made up 10%.

  • But there are some signs that the market is recognizing rapid growth without profit may not always be healthy.

  • Chinese bike-sharing company Ofo grew aggressively,

  • with nearly $1 billion in funding from Chinese tech titan Alibaba.

  • It went from having no bikes on the road in 2016,

  • to operating in more than 20 countries, boasting roughly 10 million bikes.

  • The company is beginning to pull back from expansion,

  • and is scaling back or closing down in countries like the U.S., Australia and India.

  • It's looking for, you guessed it, profitability.

  • One venture capital firm, Indie.VC is also disrupting the industry's focus on growth,

  • instead preferring to invest in companies which are firmly in the black.

  • The rise of unprofitable companies just wanting to grow market share can mean great deals for consumers.

  • But it could also mean greater corporate consolidation,

  • as smaller companies can't outspend large corporations and venture capitalists with cash to burn.

  • Hey everyone it's Xin En. Thanks for watching.

  • If you want to check out more of our videos, click here and here.

  • See you next time and don't forget to subscribe.

You'd think every business would want to make a profit.


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利益はまだ重要なのか?| CNBCが解説 (Does profit still matter? | CNBC Explains)

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    robert に公開 2021 年 01 月 14 日