The laws of physics don’t seem to apply to investments in the tech world.
While the founder of a normal business needs to save up or borrow from friends or relatives to raise initial capital, tech startups often attract seed money from angel investors, sometimes with nothing more than a rough prototype.
Normally, consistent profitability is proof of the health of a business, but in the tech world, companies are still considered to be creating tremendous value even if they keep losing money — or in the case of firms like JD.com, losing more and more money.
Revenue growth at the e-commerce firm has been spectacular indeed.
From less than 3 billion yuan (US$460 million) in 1999, the top line ballooned to over 180 billion yuan last year.
But investors hoping to see some profit need to be patient.
JD.com reported a loss of 7.65 billion yuan in the latest quarter.
Founder Liu Qiangdong once said JD.com could easily turn a profit if it stops investing.
But it never did.
JD.com has kept expanding its logistics network to cover lower-tier cities.
Fulfillment costs, the largest item after cost of goods sold, rose to 7.7 percent of revenue last year from 5.9 percent in 2013, Fitch Ratings reported.
For most of the time since JD.com went public in 2014, investors have been rather tolerant.
Widening losses were even seen as a positive sign that the firm was putting money to good use and continued to solidify its market position.
But raising money is getting more difficult in the startup world following the sharp jump in valuations.
Meanwhile, the share price of JD.com is approaching its low for the year.
Are investors tired of constantly hearing about the potential for profit even as actual profits remain elusive?
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