[tptacek]

Yes, and usually for a pretty straightforward reason: these companies are investing substantial sums of money into buying market share, and, when they (a) win themselves a defensible position in the market and (b) generate enough revenue to prove the market to investors, they can cut back on those expenses and take profits. Meanwhile, investors are looking for growth and, more generally, future profits; nobody's all that interested in taking a Crowdstrike dividend this year.

If a dollar in profits taken today is multiple dollars in future profits left on the table, you can see why a business would engineer its finances to plow every cent back into the business.

Obviously, this plan can always go spectacularly wrong, but you can't just point to the strategy itself as evidence that will happen. You need an actual argument to back it up.

[rossdavidh]

It's always possible to make a semi-plausible argument that money will be made someday. Perhaps that's enough for an angel investor, maybe a VC, but by the time you IPO, you really ought to have demonstrated it. But, not lately.

[tptacek]

Isn't this essentially an argument that companies should deliberately slow their growth before an IPO just to demonstrate to skittish investors (all of whom either shouldn't be picking stocks of any sort, or are themselves professional money managers who can read an S1 and a 10K) that they can be profitable without collapsing?

Profits are good, but inability to switch from growth mode to profit-taking mode is probably not the risk that should keep you from investing in Crowdstrike; the volatility of the market they're in and their exposure to technological changes is a much bigger concern.

Crowdstrike isn't like Uber, where the dial from profitable to unprofitable is essentially the question about the business. They're an enterprise software company and the majority of their money goes to sales. We have something like 30 years of experience in how these kinds of companies operate and what's going to happen with their financial engineering.

I'm not saying Crowdstrike isn't risky. They're crazy risky and I wouldn't invest personally! I'm just saying, it's easy to get companies like this confused with consumer-facing unicorn companies whose valuations are derived in part by subsidizing their customers. Crowdstrike is, if anything, infamous for the opposite thing (they're expensive).

[mason55]

Why? Why should public markets be the red line?

If you’re not profitable yet then that means there’s lots of room for growth. If companies are going public when there’s still all that room for growth then it means the public gets to share more in the growth.

[tptacek]

I assume the subtext is: because reliable, growing profits are hard to fake, and there's a broad suspicion that a lot of big tech companies are essentially "fake it 'til you make it" counterfeit businesses.

I think it's a critique that makes sense for some kinds of tech companies and not for others.

[rossdavidh]

"If you’re not profitable yet then that means there’s lots of room for growth..." Well, it _could_ mean that, or it could simply mean your business will never be profitable. In fact, of all the companies which are not profitable, easily the majority are ones that never will be (although, sure, some will).