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Screenshots from the IPO filings from (clockwise from upper left) Lyft, Uber, Slack and Pinterest.

What do Pinterest, Lyft, Uber and Slack have in common?

Yes, they’re all newly public companies, or preparing to make their initial public offerings. But they also share something in common on the bottom line — proceeding with their IPOs with lots of revenue and growth but, so far at least, without the consistent profits to show for it.

And they’re part of a trend. Eighty-three percent of IPOs in the first three quarters of 2018 were made by companies that hadn’t posted profits in the prior 12 months.

So what’s the future of these companies? And what do they say about the state of the tech industry?

On this episode of the GeekWire Podcast, we’re joined by someone who has spent a lot of time looking at the financials of many of these companies: Ben Gilbert, co-founder of Seattle’s Pioneer Square Labs, and co-host of the podcast Acquired, which tells the stories of major tech companies, acquisitions, IPOs and other deals.

“I would say we are seeing way too much similarity between these IPOs and what you would see in early stage pitch decks, which is selling on a story and selling on a narrative,” he says.

Ben Gilbert, co-founder of Pioneer Square Labs and co-host of the podcast Acquired.

At the same time, he notes, some of these companies have reached unit profitability, making money on their products and services even as marketing and related expenses make them unprofitable. And there’s a lot more in play with these companies that could impact their long-term earnings — from autonomous vehicles and electric scooters to the future of workplace collaboration.

He explains, “One key risk was that there was going to be a wild mismatch in how public investors valued these companies versus the way that the private markets had been doing that. And what we would have seen if that were true is the Lyft and Pinterest IPOs pricing dramatically under their last rounds.”

“So far we appear to be over that hurdle,” he adds.

“The risk that we still have left is that public investors are buying into what is still a lot of risk and a lot of unknowns about these businesses. Even though they stayed private longer, a lot of these companies believe that they’re entering just the largest global markets in history. And so they’re willing to take on losses for longer and in very large amounts [for the sake of] growth. And so retail investors and everyone buying stocks now has the potential reward but is also taking on the risk of, what if these companies or the one that you pick doesn’t become profitable.”

Ben Gilbert and his Acquired co-host David Rosenthal have been focusing on this new wave of public companies on their recent podcast episodes, starting with Lyft and Pinterest. Subscribe to the Acquired podcast here.

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