Gilt Groupe “Worth” $1 B. Even Though It Has Yet to Turn a Profit

pyrite Gilt Groupe Worth $1 B. Even Though It Has Yet to Turn a ProfitWhy has this lead sentence from the Wall Street Journal not provoked more ridicule? “Gilt Groupe Inc., an online retailer of luxury goods, has raised $138 million from investors, including Japan’s Softbank Group and Goldman Sachs Group, valuing the company at $1 billion even though it has yet to turn a profit.” 

Gilt Groupe is 3 1/2 years old and unlike many start-ups at that age, generates substantial revenue. Gilt Groupe claimed $170 million in revenue in 2009, Business Week reported. But the company is essentially a discount retailer–it sells luxury goods at up to 60 percent off the ticket price–and it’s not a coincidence that it launched and grew during the worst recession since the Great Depression. There’s a reason most people don’t clip coupons. It takes effort to really save money, and when times are good it’s just not worth it. Plus, there’s the stigma associated with it.

There are some penny-pinchers among the very wealthy, but is that market big enough to support a $1 billion company? Amazon IPO’ed in 1997 at $438 million, around three times its net sales that year of $148 million; Gilt is now valued at twice its net sales, according to the WSJ.