Unicorns' Pre-IPO Profits Face Increased Investor Scrutiny

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We works. IPO efforts are floundering. We reported this weekend that some board members considering asking CEO Adam Newman to step down. That's led some investors to take a closer look at other companies like Peleton who wants to go public look but don't yet make a profit Charlie. Turner has been finding out more from Jean Eagle Shem gene it seems like old times for richly valued tech companies when they go public. They claim they're profitable when the evidence indicates that they've never turned a profit we'd the parent of office based company. We work as another Unicorn it delayed its IPO about what a week ago due to investor doubts about its valuation finances and governance it has really tried to polish its financial image especially in the press. Yes exactly what we found is an investor presentation from back in two thousand fourteen where we were talking about having a profitable business model l. and the rule so articles in the press from then on from a couple of years later again just asserting without qualification that we work is profitable affordable and when we went to those media companies and said where did this come from one said internal documents another said they were told they directly it by chief executive so again as an example of the company saying we all profitable and using measures that according to them are different in in the black so we work has metrical community adjusted Ebola which is just a metric no one else uses so they all have these slightly different tailored Ed metrics that magically go from in the red to end the black okay as one example Peleton interactive is going public this week. It has a multi a billion dollar valuation but no matter how hard it pedals. It's still spilling red ink. That's exactly right I it's been running at a loss since it was formed. It says says it's not clear when it will reach profitability but then chief executive last year went on television and said we are profitable so it's a good example these companies were they say they have these metrics that they say are bad reflect how well the businesses performing coming in terms of stripping out costs related to the growth. That's their argument. That's the metric. They're using their stripping out all these costs. That's a number of these companies. He's US exactly it's not clear what Peleton based its statement on but a lot of companies lift is a good example they using measures that they say represents events what happens with the underlying business strips out all startup costs all the gross costs certainly they would say you get these massive losses because you're taking it always costs but they say things like in we were case the cost of doing business before they rent it out or the cost of advertising they they say those are not reflective of the underlying profits of the buildings once they're up and running other people would say I she you need you do need to look at these costs because because for the investors what matters is the bottom line what about lift lift is already gone public and I think it's stock has basically suffered since its public offering. Is this an example chapel of investors just getting wise to lift well. I think certainly we sing with some of these UNICORNS that once they published their financials then investors as-as do definitely have some questions about the level of losses. I mean lift says it has a clear past the profitability and they again use this metrical Michael contribution that they say again reflects the underlying profitability what can the Securities and Exchange Commission do about this aren't there fines against companies that mislead mislead the public in mislead investors regulators about their financial condition the SEC does have jurisdiction over this to the extent that they say that policing whether private companies make misleading statements and they in fact last year brought a case against a company for the way presented its metrics search for not giving the audited numbers equal prominence but in practice actually the SEC where the private companies where they're not directly selling to small investors justice in practice this is going to go after different cases you can

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