The death of profit: Why investing feels broken, and markets no

Patrick Dovigi is doing the unthinkable. His company, GFL Environmental Inc., hauls trash in bright green trucks across Canada and the United States. Yet the 41-year-old Canadian is something of an industry wunderkind, having made the garbage business look glamorous – at least to investors.

GFL went public in March, 2020, and in the 18 months since, its share price on the Toronto Stock Exchange has almost doubled. The whole sector has performed well, but GFL’s return has trounced those of its major rivals, and the company is now valued at more than $15-billion.

A key part of GFL’s appeal is its consistent growth. Since founding the company in 2007, Mr. Dovigi has acquired more than 100 smaller rivals and transformed GFL into North America’s fourth-largest player. For his prowess, Mr. Dovigi was paid $37-million last year, making him one of Canada’s highest-paid CEOs, but some of his compensation was paid in stock options, and those alone are worth $214-million at current prices.

The irony here is that GFL doesn’t make money. In fact, the company loses a lot of it. Over the past three fiscal years, GFL’s net losses have totalled $1.9-billion. Yet Mr. Dovigi is hell-bent on consolidating the fragmented waste management industry, and he has no qualms about paying for deals with fresh debt that eats into GFL’s bottom line. Moody’s has rated the company’s debt as junk and called out its “aggressive debt-financed acquisition growth.” But that hasn’t slowed Mr. Dovigi down. Profit? For him, that’s a long-term problem.

It’s a common mindset lately. For all its hype, Uber Technologies Inc. UBER-N has never made money – actually, it’s lost US$19-billion over the past five years. Streaming giant Spotify Technology SA SPOT-N has lost €2.6-billion ($3.8-billion) over the same period. There are now so many high-profile money-losers that Goldman Sachs recently created a Non-Profitable Technology Index, and its value soared when the pandemic hit.

Money-losing companies are also getting acquired for astronomical sums. This past December, Salesforce.com Inc. acquired Slack Technologies for US$28-billion, even though Slack, developer of the ubiquitous workplace messaging app, lost $1-billion over three years. And in August, payments specialist Square Inc. bought Australian buy-now-pay-later lender Afterpay for US$29-billion, even though Afterpay has yet to make a cent.

This euphoria for money-losing companies emerged in the aftermath of the 2008 financial crisis, when disruptors like Facebook and Netflix prioritized scale and global reach over profits. Because they were so successful at it, many investors became…