3 ms·
> Ok, then why is loss-making more acceptable (safer for small investors) in a formerly profitable company than it is for a not-yet-profitable company? One has
by chc 7y ago
> Ok, then why is loss-making more acceptable (safer for small investors) in a formerly profitable company than it is for a not-yet-profitable company?
One has demonstrated the ability to turn a profit and the other has not. This seems a bit like asking "Why is radiation considered a valid cancer treatment and rhino horn isn't when both have failed to help people before?"
- evrydayhustling 7y agoPeople have a lot better info than total profitability to answer "can this make money" or not. Financial statements (like this S-1) do their best to separate out how much is being spent to keep customers from how much is spent to acquire them. In lots of cases (including this one) the company has proved that they have a profitable relationship with existing customers, and that they have tolerable-and-dropping costs in acquiring new customers (in this case it looks like they are breaking even on new customers in around 9 months). There are exceptions and sleight of hand (like when Uber doesn't reveal costs to get drivers, but this is 100% true for formerly-profitable companies too. You could make a much better argument for skipping on those, or by forcing more disclosure in S-1s. But painting broadly based on total profitability is just too simplistic.