Going public and selling stock is a major milestone for a company. Not every company gets to do so. Those that want to must face strict regulations, find people to help finance them, and actually see some demand from potential shareholders. While companies go public all the time, fewer tech companies are making the leap from private to public these days. (That’s why Snapchat’s recent initial public offering was such a spectacle.)
In the early ’00s, countless tech and web companies became publicly traded companies after existing for short periods of time. Most of them weren’t even turning a profit. Regardless of their profitability, investors were excited to “get in on the ground floor” with businesses using new technology to reach customers. They quickly realized, however, that these companies were effectively worthless. Many investors lost millions, if not billions on these dot-com stocks, and the companies subsequently disappeared into nothingness.
Since this tech bubble burst and the 2007-2008 crash, only a select few tech companies became publicly traded on the stock exchange. Facebook ($FB), Twitter ($TWTR), and Snapchat ($SNAP) are among the most notable recent cases of tech companies going public and selling stock. A handful of smaller companies, like Twilio ($TWLO), followed in their wake with mixed results.
Yext, a tech company that specializes in location-based online marketing, thinks they’ve got what it takes to go public and sell shares on the New York Stock Exchange. Judging by similar IPOs in the last few years, they certainly have their work cut out for them.
Yext is a New York company that touts itself as a “knowledge engine.”
They sell services to businesses that help them update brand pages on map apps (Apple Maps, Google Maps), location-based networks (Yelp, Foursquare), search engines, and other sites. Their results are pretty stylish and streamlined, and many major companies work with Yext to keep their brands up to date everywhere.
Unfortunately, Yext doesn’t know how to turn a profit.
In nine months, Yext made $89 million in revenue but still posted a $28.5 million net loss. This means they aren’t profitable. In fact, they previously posted $64 million in revenue and a $18 million net loss for the same period. This technically means that the more money they made, the more they lost.
Despite not being profitable, Yext still wants to become a publicly traded company.
Yext has hundreds of millions in financing from venture capitalists, but this can only sustain them for so long. By selling stock in their company during an initial public offering, they stand to make more money once people buy their stock. This will hopefully help them become profitable.
You don’t need to be a profitable company to go public.
Snapchat just went public, but they’re losing hundreds of millions of dollars a year. Twitter went public a few years back and still has yet to become profitable. (They might get bought out soon, too.) Profitability certainly increases the value of a company, but so does the promise or even potential of becoming profitable. If Yext has a product that will eventually lead them to profitability, investors would trip over one another just for a chance to invest. If they can’t become profitable, they risk shutting down.
Should you invest in Yext? You can’t just yet, as the company isn’t listed on the NYSE (under $YEXT). If you think their business and business model will eventually lead to profitability, be sure to research the company first before buying them when they go public. If you feel safer with investing in a profitable company, you’ll want to look elsewhere.