Tech companies are finding their profitability groove
Tech companies are getting the hang of making money — or at least they're losing far less than they used to when money was cheap and "growth" was sexy.
How are tech companies improving profitability?
Tech companies are focusing on generating cash rather than burning it, which has led to improved profitability. For instance, Amplitude reported a record operating cash flow of $20.4 million and positive free cash flow of $19.3 million in Q2 2023. Similarly, Klarna marked its first month in the black in Q2 2023, demonstrating a significant turnaround in its financial performance.
What trends are emerging in tech company valuations?
As tech companies prioritize profitability over rapid growth, their valuations are being reassessed. While growth rates have slowed, the improved profitability is reshaping how investors view these companies. Data from Altimeter investor Jamin Ball indicates that software valuations may appear expensive, but when factoring in enhanced profitability, the outlook becomes more balanced.
What impact has the shift to profitability had on growth?
The shift towards profitability has resulted in a slowdown in revenue growth for many tech companies. For example, Asana reported a dramatic flip to positive cash flow, but overall revenue expansion has decreased. This trend suggests that while companies are becoming more financially stable, they are not growing as quickly as they did in previous years.
Tech companies are finding their profitability groove
published by Route22 Limited
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