Given COVID-19 lockdowns, this was a solid six months for Airtasker. Mr Market seems to agree with shares up more than 20% in the two days following the results announcement on the 31st Jan 2022.
Hi Jordan, I'm a new subscriber but I already value your deep dives so much. I'm also new to investing, and I wanted to ask about how I should think about investing in startups, like Airtasker, who are yet to breakeven. I very much want to invest for the long term in companies that are growing, but how can I be sure they will move towards cash flow positive territory. The initial prospectus for Airtasker says that they might not even reach breakeven point and may rely on continuing funding raising; and I was a bit taken aback by that.
Hi Clinton, thanks for your comment. Valuing earlier-stage growth companies no doubt is more unpredictable than a more stable/mature business. A few things I consider about whether an early-stage company can eventually become profitable:
- What are the gross margins like? (higher means more potential for operating leverage down the road).
- How much is the company spending on R&D? If a lot, earnings might be artificially suppressed as the company may be going through a major investment cycle. Once this R&D spend normalises, margins will improve.
- Is the company showing a clear path to profitability? (i.e., margins consistently improving each quarter/year).
- Are comparable business models profitable at scale?
I'm going to use your great analysis in thinking about my investments. Looking at Airtasker, I'm also interested in Hipages, which seems undervalued. It'll be interesting to watch them both.
Hi Jordan, I'm a new subscriber but I already value your deep dives so much. I'm also new to investing, and I wanted to ask about how I should think about investing in startups, like Airtasker, who are yet to breakeven. I very much want to invest for the long term in companies that are growing, but how can I be sure they will move towards cash flow positive territory. The initial prospectus for Airtasker says that they might not even reach breakeven point and may rely on continuing funding raising; and I was a bit taken aback by that.
Thank you,
Clinton
Hi Clinton, thanks for your comment. Valuing earlier-stage growth companies no doubt is more unpredictable than a more stable/mature business. A few things I consider about whether an early-stage company can eventually become profitable:
- What are the gross margins like? (higher means more potential for operating leverage down the road).
- How much is the company spending on R&D? If a lot, earnings might be artificially suppressed as the company may be going through a major investment cycle. Once this R&D spend normalises, margins will improve.
- Is the company showing a clear path to profitability? (i.e., margins consistently improving each quarter/year).
- Are comparable business models profitable at scale?
Hope that helps!
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Thanks Jordan, I appreciate you answering.
I'm going to use your great analysis in thinking about my investments. Looking at Airtasker, I'm also interested in Hipages, which seems undervalued. It'll be interesting to watch them both.
Thanks,
Clinton