Unprofitable IPOs Are Back, But Is That A Bad Thing?

from the money-for-everyone dept

There’s been a lot of talk about the long-awaited return of the IPO market, which is best exemplified by Clearwire’s recent market debut. Part of the reason that Clearwire’s IPO is a big deal is that the company isn’t profitable, or even close to it. In fact, as The Wall Street Journal points out today, a good number of newly public companies aren’t profitable. This is, of course, bringing back memories of the bubble, when the market had a seemingly insatiable appetite for companies regardless of where they were on the path towards profitability. But it would be lazy to say that this means the bubble is back. For one thing, IPO volume remains a fraction of what it was back then. And it wasn’t just unprofitable companies doing IPOs during the bubble, companies with barely any revenue were also going public, which suggests a totally different level of speculative mania. On their own, there’s nothing wrong with these IPOs. A company without profits can still be a good (albeit speculative) investment if its prospects are deemed to be bright enough. It’s only when investors completely drop their standards and will invest in any company despite its poor prospects that it’s time to worry.

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