Nasdaq CEO: Companies going public need a 'path to profitability'
The high-profile IPO struggles of buzzy companies like Uber (UBER), Lyft (LYFT), and Peloton (PTON) came after a common business struggle shared by each of them: They hadn’t turned a profit. In a newly released interview, Nasdaq President and CEO Adena Friedman says profitability has become a top concern for investors and may have taken some major tech companies by surprise.
“As companies start to mature and get ready for the public markets, public investors are really focusing on profitable growth,” says Friedman, who has helmed one of the nation’s largest stock exchanges since 2017. “That has become more and more of a focus for those public investors this year.”
“As some of these larger tech companies come out, that's become more of a dialogue than maybe they were expecting as they were entering the markets,” Friedman tells Yahoo Finance Editor-in-Chief Andy Serwer.
Uber and Lyft, rideshare companies with massive brand recognition and deep pockets, went public with much fanfare in the spring. But neither one had turned a profit — Lyft had lost $911.3 million in 2018 while Uber had lost $1.8 billion that year.
Lyft, which went public on March 29 at $87 per share, plummeted to a low of about $38 in October and has since risen modestly to its current price of $47. Uber hasn’t fared much better, having gone public on May 10 at $42 per share and fallen steadily to its current value of about $29.
A slightly rosier story goes for Peloton, an exercise bike company that went public in September. Long before the social media firestorm that has embroiled the company over its newly released commercial, Peloton posted net losses of $47.9 million in 2018. The stock opened at $27 before dipping to $21 in October, but it has rebounded in recent weeks to a current price of about $32.
Over the course of the interview, which was taped on Nov. 11, Friedman did not comment specifically on companies but spoke to a general trend in the market.
“It's important for every company that's thinking about how do I make my business model and the story and the strategy that I have, how do I make sure that public investors feel confidence in investing in me?” Friedman says.
“A big part of that is going to be making sure that they understand there's a path to profitability because what investors don't want is an unpredictable outcome,” she adds.
Friedman made the comments during a conversation that aired in an episode of Yahoo Finance’s “Influencers with Andy Serwer,” a weekly interview series with leaders in business, politics, and entertainment.
An intern at Nasdaq in 1993, Friedman became the company’s chief executive in nearly a quarter century later, in 2017. Besides a brief period as chief financial officer at the Carlyle Group from 2011 to 2014, she has spent her entire career at Nasdaq. Last year, Forbes ranked her the sixteenth most powerful woman alive.
‘Focused on scalability’
Friedman acknowledged that companies aren’t necessarily expected to turn a profit before they go public, but said they should be able to make a compelling case for how they’re going to get there.
“They certainly shouldn't necessarily have to be profitable upon going public,” she says. “But that path to profitability based on a scalable model is going to be an area of focus.”
Companies will take note of the shift, Friedman predicted.
“You're going to see that the expectations and also the way that these private companies mature themselves and get ready for the public markets is going to be much more focused on scalability,” she says. “I think companies are going to be more tuned to that going forward.”
Max Zahn is a reporter for Yahoo Finance. Find him on twitter @MaxZahn_.
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