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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: 2
by alberth 5y ago
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.
- dfee 5y agoIsn’t your second sentence just a truism on the first sentence? profit = revenue - costs
- alberth 5y agoMaybe a better way of saying what I meant is, gitlab is losing more than 2x their total generated. That’s what seems scary.
- joering2 5y agoIt is also somewhat easy to enter the market. You do not need a hundred million dollars upfront investment to build a competitor, at least in terms of functionality of provided services. A good example in my opinion is how BitMart is eating up Coinbase US market with many of my friends moving on to safe money on the fees since "crypto is crypto". From their IPO coinbase is 25% down as of today, and I don't see any compelling reasons for the stock to rebounce.
- deleted 5y ago[deleted]
- jpollock 5y agohe means losses > revenue, in other words costs > 2xrevenue.
- beeneuf 5y agoNo, you're conflating "loss" (negative profit) with "cost". The first sentence acknowledges that plenty of tech companies IPO and are not profitable, so their revenue is below their costs. The second sentence is about losses (negative profit) exceeding revenue. 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.
- OJFord 5y agoFirst sentence: 'I realise many ... profit < 0' Second sentence: 'Seems scary ... profit < -revenue'
- joelbluminator 5y agoYes and seeing the loss grow like that yearly is not a good look. Otherwise the product is really good.
- mason55 5y agoCan’t really say that without a cost breakdown. If the LTV of a customer is greater than the CAC then your losses will grow as you do until you reach a more steady state and reduce your marketing spend. 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.
- RC_ITR 5y agoYeah, but burning $183 to add $71 in revenue is a tough pill to swallow. 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).
- b9a2cab5 5y agoYou just need to be confident the LTV estimate is correct. That being said I'm pretty bearish on dev tooling in general as it seems like companies don't want to pay for it (but they will pay for expensive AWS services!)
- PaywallBuster 5y agoor use it's subpar _cloud native_ tools for the "magic integration"
- RC_ITR 5y ago>You just need to be confident the LTV estimate is correct. 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).
- gigatexal 5y agoIncome of 152 with total expenses of 344 in 2021 and income of 81 and total expenses of 211 means expenses grow at 1.61x of revenue (344/211) whereas revenues are growing at 1.876x yoy so revenue growth exceeds loss growth in time they’ll be profitable. Especially if in 2021 they were profitable when companies were cutting down on things.
- gigatexal 5y ago1.61x of costs not revenue. I was dividing the expenses from year to year.
- bpodgursky 5y agoIf that kind of growth is sustainable, it's only a couple years out from profitability. Admittedly it's a runway, but the growth is impressive.
- HWR_14 5y agoIt depends on why they're losing money. 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.
- sjatkins 5y agoYeah, remember how Amazon got theirs. Not that those results will apply here of course. A lot depends on how much upside your investors and stock holders believe will eventually come to pass. Hard to say you are going to take much market share from a project owned and backed by Microsoft though.
- greghendershott 5y agoI am by no means a finance or investing whiz. But the first thing I like to do is skip ahead to the cash flow statement. In this case https://www.sec.gov/Archives/edgar/data/1653482/000162828021018818/gitlab-sx1.htm#i359e99a49d03416a83f04e786aaaf108_100 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.
- b9a2cab5 5y ago60M cash loss in 2021, with over $100M stock based compensation expense. Maybe with Phabricator shutting down they'll see more growth but the last time I used Gitlab it was not comparable to Phabricator's (and Gerrit's) usefulness for large orgs. It's more like a Github clone in the way it functions.
- foolfoolz 5y agogerrit was a decade ahead of the competition for code review. github is just starting to catch up now to where gerrit was in 2011
- potamic 5y agoWould you mind sharing a ELI5 of how you go about reading these?
- mikysco 5y agoThe overwhelming majority of high-growth technology companies recognize a net revenue loss going into IPO. The purpose of the IPO and prior VC rounds is to finance a strong company & product, and more importantly, help win enough market share early enough in the sector's lifecycle to recognize a full or partial monopoly over the space. The fact Gitlab are recognizing a loss at IPO could have been predicted at the company's inception.
- jppope 5y agothis is actually quite surprising to me given what their product is...
- adamrezich 5y agothis is what I was thinking. I installed a gitlab instance on an old laptop for a friend and myself to use to collaborate on a couple small projects a few years back. I haven't checked in to see what gitlab offers today but I'm having a mental disconnect between all those millions of dollars and what my understanding of the product is. there must be something the product offers that I'm ignorant to that justifies all that money.
- Gigachad 5y agoGitLab is not just a git hosting and collaboration tool. They want it to be the single tool you use for almost everything to do with an application including monitoring, controlling infrastructure, error logging, project management/planning, security auditing, and a bunch of other things. 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.
- stefan_ 5y agoMost S1 on HN are companies that spend $3 to get $1 in revenue. It was explained to me that this is totally normal and very different from DotCom companies literally buying revenue.
- HWR_14 5y agoAre you being sarcastic or not? And what are the explanations you've heard?
- stefan_ 5y agoHalf sarcastic, half serious? I think the prevailing theory is that yes these companies are spending tons of money to get a little bit of money, but it's a one time per customer expense and that customer will still be there for many more quarters, paying monthly dues.
- amelius 5y agoSounds a lot like: https://en.wikipedia.org/wiki/Predatory_pricing https://en.wikipedia.org/wiki/Predatory_pricing And is illegal in some jurisdictions and frowned upon in others.
- NovemberWhiskey 5y agoNo? The point is just that revenue for subscription models recurs whereas build cost does not (handwave).
- amelius 5y agoYes? There are operational costs involved as well. It's not like a company fires half of their team after the product is launched.
- kevin_thibedeau 5y ago
- codegeek 5y agoI guess if you look at it, they almost doubled their revenue in last 1 year but the loss only went up by a fraction compared to last year. So they are on a high growth path which is what investors want I assume.
- fnordsensei 5y agoIt requires closer inspection in this particular case, but losses are not always bad if they’re calculated. For example, if you spend $100 to bring in a customer that yields $200 in a year, it makes sense to “buy” as many customers as you can. 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?
- danielmarkbruce 5y agoThe majority of their costs are sales, and R&D. Those will almost certainly start to grow much slower than sales, and then they'll be fine. They have to take customers while they can.
- anonymoustrolol 5y ago152% NDR tells me they should either buy as many customers as possible right now (IE burn), or they are under pricing and should raise prices and increase revenue that way. Cash flow on its own is kinda meaningless.
- Koffiepoeder 5y agoThey did quite recently [0]. 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-subscription-model/ https://about.gitlab.com/blog/2021/01/26/new-gitlab-product-...
- rossmohax 5y agoonly CI related feature previously available on bronze, but not on free anymore is branch protection. Rest of bronze CI should work just fine.
- Koffiepoeder 5y agoThe most important one for us is the `environments` feature, but indeed a lot of four-eyes-principle controls are also missing in free tier (MR approval requirements, committer verification, push rules...).
- asciimike 5y agoHere's a good analysis of the financials in the S1: https://cloudedjudgement.substack.com/p/gitlab-benchmarking-the-s-1-data https://cloudedjudgement.substack.com/p/gitlab-benchmarking-...