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As tech companies seek to limit losses, a reminder of how far some have to go • TechCrunch

Examining the profitability gap

The 2022 perspective that startups should cut their losses and chart a clearer path to profitability does not only apply to upstart tech companies. After a multiyear spending binge, larger technology companies are also pulling back on costs.

For some major tech concerns, the cuts have come in the form of explicit layoffs and staffing reductions created by not backfilling departing employees, while other tech shops are cutting costs, including perks and related employment-enticement efforts. But while some major technology companies are trimming spending to bolster profitability, others remain miles away from making money.

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Such is the case of Bilibili, a Chinese online video service with a social component. Today, shares of Bilibili are performing strongly, up sharply after the company reported better-than-anticipated Q3 earnings results. Naturally on the hunt for some good news amid a year of bearish headlines, compressing multiples, and chaos, we took a look.

What we found was a business further from profitability than we expected. The Chinese company, worth around $5 billion today per financial databases including Yahoo Finance, has done a fantastic job capturing a growing audience in its home market and keeping those netizens engaged. But when it comes to building a more profitable company — its stated goal, as we’ll examine shortly — it has much work ahead of it.

That shares of Bilibili are up more than 20% today is good news, albeit in a limited sense. The company’s shares trading on U.S. exchanges crested the $150 per-share threshold in booming 2021. They closed yesterday at $12.59 per share, before today’s uptick of nearly $3 per share.

The work ahead of Bilibili to reach profitability — measured in GAAP terms, mind — reminds us of other tech companies that saw their values skyrocket and losses stick during the 2021 era. Some of those concerns, like Twilio, are still growing quickly, and at scale, but their losses appear to have set a weight around their shoulders, compressing their total value.

Put more simply, Bilibili’s unprofitability tells us that unwinding 2021’s excesses will take years, in some cases. For already-public tech companies, this can mean a painful march to the black. For startups, it serves more as a warning about what happens when growth fails to generate sufficient operating leverage.

Read More: As tech companies seek to limit losses, a reminder of how far some have to go • TechCrunch

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