Coverage of technology startup IPOs generally focuses on companies that lose money.

Of course, there are exceptions. Blockbusters like Google, which made money from search engine advertising long before it went public. Or more recently, companies like Instacart or Klaviyo, which went public shortly after making a modest profit.

But in most cases, even the most valuable venture-backed technology companies went public before they became profitable. They eventually made money, but it often took a while.

How long? We wanted to answer this question to determine investors’ tolerance level when waiting for a publicly traded company to generate net profit. We focused on companies that went public after 2000 and are currently among the very large market capitalization stocks.

Here’s what we found out.

It is common to wait several years

It took a while for today’s high-flyers to reach their current valuations and investors often waited a few years before they made profits.

One of the latest additions to the now profitable club is Uber, which went public in 2018 and reported its first annual net profit in 2023. In parallel, the ride-hailing and delivery giant’s shares have performed well over the past year, with the company’s market capitalization recently reaching around $150 billion.

Palo Alto Networks, whose market capitalization is around $115 billion, also took a while to become profitable. The security provider, which went public in 2012, reported an annual profit for the first time in the 2018 fiscal year.

The e-commerce platform Shopify, whose market capitalization was recently around 100 billion dollars, also needed some time. The Toronto-based company went public in 2015 and is expected to record its first profitable year in 2020.

Meanwhile, Palantir Technologies, founded in 2003, took 20 years to post its first annual profit in 2023. However, the company waited until 2020 to go public, so those investors who backed it as a private company were the most patient.

Exceptions can be made for exceptional companies

Some companies with extremely high valuations took an unusually long time to become profitable as public companies. In the meantime, they benefited from well-known brands, a high buzz factor and long-term shareholders who believed in the business model.

A famous example of this is Tesla, which went public in 2010 and reported a profit for the first time in 2020. Even before the profit distribution, Tesla was considered the world’s most highly valued car manufacturer by market capitalization for years due to its image as a pioneer in the mass market for electric vehicles.

Salesforce 1, the sixth most valuable publicly traded software company, is another late bloomer in terms of profitability. The company went public in 2004 and reported its first annual profit in the fiscal year that ended January 31, 2017. But with billions in revenue before that, the CRM giant had no trouble convincing investors of its strength in sales.

Increasing revenues make losses much more bearable

It sounds a little obvious, but investors are much more willing to accept net losses in companies with high revenue growth. Shareholders can also distinguish between a company that is hopelessly in the red and one that could probably become profitable but chooses to invest in growth instead.

Amazon, which went public in 1997 and made its first annual profit in 2023, is the classic example of the latter. Founder Jeff Bezos was known for putting growth ahead of short-term profitability. He bet that the e-commerce provider would gain market share with free or low-cost shipping and competitive prices. And he was right.

Among the currently unprofitable tech companies, Snowflake stands out as one that has been able to grow quickly, post large net losses and maintain a high valuation for a period of time. However, the journey has not been entirely smooth. Shares took a hit last week after Snowflake reported higher revenues but a higher net loss of $318 million.

What the time to profitability means for unicorns and IPOs in the boom era

Given the massive backlog of not-yet-profitable tech unicorns, the question of how many years it will take them to be profitable is particularly relevant right now. To get off the ground successfully, the not-yet-profitable companies will likely have to convince investors that they will be in a few years.

Unfortunately, it’s pretty difficult to tell what shape private unicorn financial companies are in, since they’re not required to disclose their earnings. However, companies that are posting solid earnings are more than happy to trumpet that fact. Since few unicorns disclose their net income, it’s not unreasonable to assume that most are still in the red.

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Illustration: Dom Guzman