In what looks like a classic sign of a “bubble”, public investors are valuing unprofitable companies higher than they are profitable ones that entered public stock exchanges last year. “Those are the findings from a new PitchBook report on the stock performance of US unicorns. The study looked at the median stock-price change for startups valued at more than a billion dollars when they went public.
For the unprofitable ones that went public in 2018, their median stock-price growth has been 120 percent on an annualized basis, from the IPO offering price through March 12 of this year. The median decline for stocks that were profitable has been 57 percent for 2018… In general over the past nine years, profitability has barely made a difference for performance…. “In general, you’re not seeing a huge preference either way in public markets for if a company has been profitable or unprofitable at its IPO,” Cameron Stanfill, an analyst at PitchBook and the report’s author, told Recode…“They believe in the business model and are disregarding the current state of profitability at the IPO,” Stanfill said.”
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