It makes no sense to shoot for profitability when you are growing rapidly. Yelp has only just started expanding outside the US. It's cash is much better spent on growth than sitting in the bank.
How do you know that your rapid growth isn't a result of your service being unprofitable? Wasn't that the lesson that we were supposed to learn with pets.com and kozmo? Also I believe that profitability and rapid growth are not mutually exclusive. I understand the theory of operating at a loss, but it leaves very little room for uncertainty in the marketplace. If you have new competition, capital dries up, or you make any sort of mistake, the company could go belly up. I wouldn't want to invest in any company unless it could show a clear path to becoming profitable.
Accounting profit is not generally a great test of the long-term profitability of a business, because much depends on how revenue from customers comes in, how costs are timed, etc.
Generally, if you have a business where there is a significant growth opportunity / market opportunity, the right strategy is to run at an accounting loss to grow faster. What matters is the cash situation, not the accrual accounting situation (and they are not that closely tied to each other.) Growing slower so that you show an accounting profit would be the wrong thing to do and the market would not consider it a positive indicator for a company coming to IPO.
Pulling out 12 year old anecdotes is not a terrific defense. Yes, there is risk involved. But few companies have gotten huge without taking on that kind of risk. You are welcome not to invest but might want to step aside to avoid the stampede.
Amazon did the same thing, if you remember their end of Q3 statement -- instead of profit, they re-invested in themselves (probably Kindle related purchases to have a bigger Q4).
That's not a good analogy. Amazon made a profit, they just chose to reinvest it in infrastructure. The above mentioned companies are still losing money (I believe).
True, it can be a good decision for a starup to optimize for market share first, profitability second. But even an IPO only gives you so much runway. Eventually you need to start turning a profit. And the longer you emphasize market over profit, the bigger the whole you've dug for yourself.
They chose to invest it in payroll, actually, which is why accounting profit did grop. Investment in infrastructure would be capitalized over multiple years and have much less impact on the current quarter, I believe.
