How important is profitability for technology IPOs? Do the stock prices of tech companies that are profitable when they go public outperform those that aren’t? This viz posted by the Wall Street Journal offers a surprising answer.
About this Viz
The viz chronicles the post-IPO stock performance of the largest 100 software companies by market capitalization, dividing them by whether they were profitable (the blue line) or not (the orange) at the time of the public offering.
Perhaps unexpectedly, in the first two years after the IPO, the average returns of the unprofitable group easily outperformed the profitable companies. After year one, average returns were 86% versus 39%, respectively. By the end of year two, those figures grew to 110% versus 89%.
But everything changes by the third year. While the average returns of the profitable group continue to climb to 153%, the unprofitable group’s returns fall off a cliff to 36%. That’s a significant difference.