Profits? We Don’t Need No Stinkin’ Profits!

To paraphrase the famous line from the Humphrey Bogart movie “The Treasure of the Sierra Madre”, recent IPOs seem to be saying “Profits? We don’t need no stinkin’ profits!” Rivian Automotive, a maker of electric “adventure vehicles” based in Irvine California recently went public with an eye-watering first-day valuation of $105 billion. This is a higher valuation than both Ford, whose valuation is $78 billion, and GM at $90 billion.

There’s just one slight problem - Rivian does not make a profit. In fact, according to Professor Jay Ritter at the University of Florida’s Warrington College of Business, in the last year only about 20% of IPO’s were by companies that actually made money. This is a complete reversal since the 80’s, when 80% of IPOs were profitable. And it is reminiscent of 2000, when a similarly tiny percentage of IPOs were profitable - right before the dot.com crash.