Tech IPOs: Profits don’t matter

March 26, 2014, 8:56 PM UTC

FORTUNE — When cloud storage and file-sharing company Box filed for its IPO on Monday, many journalists and pundits pounced on the company’s massive losses ($169 million on $124 million in revenue for 2013). In an instant, the company’s high-profile promise was washed away in a sea of red ink. If you buy into this thing at a multi-billion dollar valuation, conventional wisdom is that you’re a sucker.

Never mind that fellow enterprise software company Castlight Health (CSLT) — a wildly unprofitable business with barely-discernable revenue — recently priced its IPO above range and continues to trade another 60% higher. No net income, no love.

Today, a different company came to market, armed with $568 million in 2013 profits on $1.8 billion in revenue. That would be King Digital (KING), maker of highly-addictive mobile games like Candy Crush Saga. It managed to price its shares at $22.50 (middle of its proposed range), giving it an initial market cap just north of $7 billion. As of this writing, however, King shares are down more than 10%. Apparently folks are a bit worried that this is Zynga Part Duex, a gaming company that has tied its IPO to the moment of peak popularity for its flagship game. And it probably doesn’t help that King’s initial market cap was virtually identical to that of Zynga (ZNGA) at the time of its late 2011 IPO.

So what have we learned here? Namely, that profits don’t really matter when it comes to tech IPOs. Or, at the very least, they are not determinative.

Today’s IPO buyers care about two key metrics:

  1. 1. Growth.
  2. 2. Total available market, into which that growth can be realized.

For a company like Box, chances are that the skeptics are wrong. Its revenue has effectively tripled over each of the past two fiscal years, while its losses only increased by 50% last year. Moreover, it’s only begun to scratch the surface of possible enterprise customers — particularly because its sales model relies on employees incorporating the free version into their workflow before approaching corporate about an enterprise-wide pay version (only 7% of its 25 million registered users currently pay). Likewise, a company like Castlight was arguably being valued by its order backlog and macro healthcare insurance changes that are creating a vast opportunity for its solution.

On the other hand, there seem to be concerns that King Digital may already have peaked in terms of growth. Not so much because of its reported financials — 2013 revenue and profits were both up exponentially over 2012 — but rather because there are some indications that Candy Crush growth is slowing, and that game accounts for nearly 80% of the company’s revenue. In other words, shades of Zynga and FarmVille.

That may be unfair, but my overarching point remains: Profits do not decide a company’s success or failure in the public markets. If they did, growth-focused Amazon (AMZN) wouldn’t be trading at more than $350 per share.

The Amazon example also is instructive for one other reason: Many of these tech issuers — particularly the enterprise tech ones — could be profitable if it was somehow required. They’d probably shrivel up and eventually die, but it technically could be done (as opposed to investing into future growth). This is a key difference between today’s tech IPO market and the dotcom boom — where many of the frothiest companies had no underlying business to fall back on if times got lean. You may disagree with the notion of revenue growth trumping profitability — and it’s a near certainly that valuations will eventually fall, leaving many tech IPO investors with losses — but at least today’s buyers are looking at those metrics, instead of something like “eyeballs.”

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