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Tech investors now want EBITDA, not growth at all costs: JP Morgan
As liquidity shrank, investment bankers demanded a more concrete path to profitability from tech companies.
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The apps of six Indonesian unicorns are shown on a screen, on Aug. 3, 2021. (JP/Norman Harsono)
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nvestors have become more meticulous in examining tech companies’ performance, focusing more on the bottom line and when it may turn positive.
Earnings before interest, taxes, depreciation and amortization (EBITDA) now matters more than metrics such as contribution margin or gross merchandise value (GMV), according to the United States-based investment bank JP Morgan.
Analysts were expecting firms to break down their path to profitability in a step-by-step way, JP Morgan head of Indonesia research and strategy Henry Wibowo said at a media roundtable in Jakarta on Wednesday.
As a case in point, he noted e-commerce firms now had to explain how they were achieving growth in commissions and advertising revenue. Meanwhile, ride-hailing service providers were expected to show they were being more targeted in offering user discounts.
"After EBITDA [becomes positive], analysts want to know when those tech companies hit a positive net profit," Henry explained.
Contribution margin, in a nutshell, measures revenue after the deduction of variable costs, which includes cost of revenue and marketing expenses related to promotional activity.
However, the number does not take into account fixed costs, such as rent and lease payments, utility bills and salaries.
