In an article today, Jeffrey Funk and Gary Smith puzzle over the way investors have “rained cash” on unprofitable companies like Uber, Airbnb, DoorDash, etc. Yes, they are icons of popular culture. No, unlike Apple and Google, they do not make money: Here are their stats from the table the authors offer:
Company Founded Funds Raised Cumulative Losses
Uber Technologies 2009 $25.2 billion $31.7 billion
Airbnb 2008 $6.0 billion $6.0 billion
Door Dash 2013 $2.5 billion $4.6 billion
Only one of the 15 companies they list — including some other culture icons — has ever had a profitable quarter:
Any hopeful arguments that profitability is just around the corner ring hollow when every company is at least nine years old and two are more than 20 years old…
Many unicorns will surely soon go bankrupt or be acquired at fire-sale prices. A failure of Uber or WeWork would be 10 times larger than the previous records for lost venture-capital funding. A wave of unicorn failures would send tremors through financial markets, but it is unlikely that the federal government would use a “too-big-too-fail” excuse to intervene.Jeffrey Lee Funk and Gary Smith, “Any one of these 15 money-losing companies could become the stock market’s biggest ‘unicorn’ failure ever” at MSN (September 14, 2022)
The problem of profitless unicorns is global, they say, and it’s reasonable to suspect that a trend toward inflation and recession will push some of them over the edge.
The problem is not new. This from 2019:
More than 60 percent of more than 7,000 IPOs from 1975 to 2011 had negative absolute returns after five years in the secondary market, according to a UBS analysis using data from University of Florida professor Jay Ritter.Yun Li, “Don’t be fooled by the ‘unicorn’ hype this year, most IPOs lose money for investors after 5 years” at CNBC (April 3, 2019)
Jeffrey Funk noted the same thing at Wolf Street in 2021: “Today’s unicorns have bigger cumulative losses than amazon, lost money far longer than amazon, still no turnaround… Just because Amazon was able to succeed does not mean others will. But they’re getting showered with money.”
Why do investors throw money at unicorn stocks despite their record in recent years? Could it just be the thrill of feeling part of the cool high-tech crowd? We can only hope the investors don’t need the money they are betting.
You may also wish to read:
How far will unicorn share prices fall? Cumulative losses give us some insights.
With 56% of the 140 publicly traded Unicorns having cumulative losses greater than or equal to revenues, many may never erase their cumulative losses. (Jeffrey Funk, May 10, 2022)
Is rationality finally emerging for unicorn share prices? Share prices are falling as losses continue to mount. There is good news of profitable ex-Unicorns, but a trend towards stronger profitability is fairly weak. (Jeffrey Funk, January 24, 2022)