this post was submitted on 09 Jun 2023
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If reddit "isn't profitable" why is spez worth over $10 million? That's not money you just stumble into having, and if your company "isn't profitable" wouldn't you not be making enough to be worth $10 million after only a decade? Wouldn't your money be going into keeping the lights on and not enriching yourself?
*billion
And profitability is not the same as generating revenue.
You can earn $200M a quarter and still have expenses of $220M, meaning you're making a net loss.
That's why companies focus on exponential growth first and don't really care about portability, but once the userbase is large enough, they will try to monetize it. Either through ads, or paid subscriptions, premium plans, special avatars, etc.
That will surely piss of some of the early adopters, but usually isn't significant enough to make an actual dent.
The last step (which we have also seen) is then kicking out staff. That has two effects:
1., It brings down the overhead (= salaries and attached taxes & social security) 2. The revenue per capita is inflated, i.e. it looks as if every employee is generating 4000 bucks instead of 2500 (random example), which is something that looks good in an IPO prospectus.
Thank you for the explanation, I'm having a hard time understanding how an "unprofitable" business has managed to stay afloat this long.
Investors will give cash in exchange for equity in the company. The cash is used to fund whatever expenses aren't covered by revenue. Those investors are going to expect profitability to come eventually. Sometimes the business winds up doing some stuff that damages their product in order to achieve profitability.
Through investors, who consider the revenue a good indication for future profits. So they float the bill and receive shares in the company instead, and cash out during the IPO.
A company that isn't profitable will still compensate their CEO, so spez is certainly taking gone a big paycheck. In addition, these net worth calculations also take into account stock. Spez most likely still owns a piece of Reddit, and that would be a factor.
You can still get very rich off of a company that isn't profitable.
Case and point: Adam Neumann