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What Happens When An Unprofitable Company IPOs?
Zipcar IPO'd today with its shares popping 55%, giving it a valuation of around $1 billion. It's a nice start on the public markets for a company that didn't turn a profit for the last two years.
But, do profits really even matter for an IPO? The chart above, which comes from IPO Dashboard, suggests that in the short run profits don't matter, at least not for technology companies. (Arguably, this doesn't apply to Zipcar, which is hardly a tech company.)
As you can see, unprofitable technology companies have traditionally shot out of the gates hotter than profitable companies. Over time they fade and the profitable companies end up a stronger stock.
IPO Dashboard analyzed 100 public software companies, and adjusted the data for the period in which the company IPO'd: "All of the returns in the study have been NASDAQ adjusted. This means that the returns shown above are those in excess of the return on the Nasdaq index. This is a way to control for general technology market conditions."
The chart is from a 2009 post, but we saw First Round Capital's Charlie O'Donnell tweet it today, and in light of Zipcar's IPO thought it was interesting enough to run. Read » | | | | | | | | | | | | | | | | | | | The email address for your subscription is: dwyld.kwu.careers@blogger.com
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