It’s just shy of 20 years since US political satirist Stephen Colbert coined the term ‘truthiness’.
He described it as “something that seems like truth – the truth we want to exist”.
In corporate circles, there’s a fiscal truthiness where everyone’s wealthy and successful right up until the moment they lodge tax filings with the government.
“Profitiness” allows company execs to tell investors they’re doing well and rolling in cash, while informing the tax office they’ve deeply in the red.
There’s nothing illegal or dodgy about this parallel financial universe. As the late Sydney billionaire Kerry Packer told politicians in the 1990s: “I am not evading tax in any way, shape or form. Now, of course I am minimising my tax. And if anybody in this country doesn’t minimise their tax, they want their heads read, because as a government, I can tell you you’re not spending it that well that we should be donating extra!”
You’ll also see it as ASX-listed companies soften the blow of large losses under A-IFRS (Australian-equivalent International Financial Reporting Standards) figures, alongside reporting what they call “underlying profit”.
Then there’s the metric long favoured by tech companies: operating free cash flow – the funds left after operating expenses and capital expenditure.
It’s a non-GAAP (Generally Accepted Accounting Principles) standard, so companies are free to tweak it to suit their narrative, as long as they disclose the math. It’s not a bad metric and many regard it as a more useful version of EBITDA. It’s also an easy way to see that business is able to pay its bills as they fall due and remains solvent. The company can also see how much money they have to reinvest in operations, acquisitions, dividends, or reduce debt.
So that’s how you get “profitiness” – a company rolling in cash will posting losses in audited accounts. Unlike most public companies, investors don’t expect dividends from private tech companies – and the great news is that should the business ever end up in the black, it has decades of losses to offset any profit before corporate tax becomes an issue.
It’s how Australia’s most successful tech company, Atlassian, has, on paper, been unprofitable for its entire 22-year life, while its cofounders became billionaires and the business spent billions more on acquisitions.
For example, Atlassian’s FY25 number saw revenue top US$5 billion, up 20% and losses also grew US$130.4m. Meanwhile, the business had US$1.4 billion in free cash flow for FY25.
Canva’s cash
Which brings us to Australia’s most valuable privately-owned tech company, Canva.
Since 2017, the Sydney software success story has told everyone it’s been profitable.
Just last month, as its valuation jumped to US$42 billion (A$65bn) in a secondary share sale, Canva said it “has been profitable for the last eight years”.
Canva cofounders Cliff Obrecht, Melanie Perkins and Cameron Adams. Photo: supplied
But a different picture emerged in recent days after the tech unicorn got around to telling the corporate regulator, ASIC, how it’s been tracking, when filing its 2021 and 2022 financial accounts.
We already know that in FY23, ATO data revealed that Canva paid no corporate income tax on $1.4 billion in revenue while declaring $69.9 million in taxable income.
The company, whose long-term CFO departed suddenly in early 2024, and was only replaced last November by US-based Kelly Steckleberg, also had a change of auditor.
With an IPO in the US on the cards for next year, Canva’s no doubt keen to get its paperwork in order. They need audited account for a prospectus and there’s the small technicality that not lodging corporate accounts on time as a public company can see your shares suspended from quotation. Regulators cuts private companies a bit more slack.
But you do have to lodge audited results with ASIC when your company meets at least two out of the three following conditions – $50 million in revenue, $25 million assets or 100 employees. It’s an Australia-only issue that local scaleups hate as much as journalists love it for headlines of large losses.
Three years ago, Luke Anear, founder of SafetyCulture, cracked the shits when a newspaper reported the tech unicorn’s FY22 a loss after tax of $62 million, which included $9 million spent on two acquisitions. The truer picture was a $2.7 million monthly cash burn for a cash loss of $35.5 million.
Anear threatened to take the business offshore to avoid the scrutiny, arguing it also gave overseas competitors an unfair advantage over Australian rivals.
“They can size up how much funding they’ll need to take us on; they can see where we’re investing and where we’re not,” he said at the time.
“In the US, companies can remain private until they publicly list. It’s no wonder that Canva and others are domiciled there, and now we’re looking to relocate there too.”
A year ago SafetyCulture raised $75 million at a $2.6bn valuation.
The cost of shares
What Canva’s belated filings reveal is strong revenue grow, rising 57% to $962 million in FY2022, but sharing the love with Canvanauts via by shares put the accounts in the red.
Canva posted a $222 million loss, driven largely by $482 million in employee benefits expenses. Another way of thinking about it is that if it didn’t hand out shares the company made a $260 million profit.
Share-based payments aren’t a “real” expense since they only dilute existing shareholders and change things at the level above the company and not the company itself. There’s no cash in or out as a consequence
At the same time, Canva’s cash reserves grew by $132 million to $420 million. The kid’s alright.
In a statement to Startup Daily, a Canva spokesperson said the latest published financial statements reveal the performance of Canva Pty Ltd and its controlled entities, and not the full picture of the consolidated group results.
“Canva has been profitable on an operating free cash flow basis for several years. While our statutory financials can show accounting losses due to non-cash expenses like stock-based compensation, this is common among high-growth technology companies that use these programs to attract and retain top talent. Canva now has over 240 million monthly active users and recently surpassed US$3.4 billion in annualised revenue,” they said.
“Canva takes its financial reporting obligations very seriously and has consistently maintained robust financial reporting processes and oversight. In addition, we regularly share detailed financial performance metrics with the public, going beyond the standard requirements for private companies.”
Canva’s been cash flow positive for many years, reinvesting as it chooses in a host of acquisitions, including MagicBrief, which the ASIC filing reveals cost it $22.5 million, as well as Leonardo.ai .
It’s worth remembering that Canva last raised this time four years ago, banking $273 million. The billions of dollars worth of shares changing hands since then have been secondary sales. While Canva controlled the terms of those sales, and they delivered increased valuations, they brought no money into the business, instead giving investors liquidity.
The design giant has been busy lining up its ducks to go public, restructuring to register the parent company, Canva Inc, in business-friendly Delaware, a classic corporate move also done by the likes of Atlassian, which moved its parent company from the UK to the US in 2022.
The original local business is now Canva Australia Holdings under the US parent. That shift triggered tax issues for staff and former employees with Canva shares. The ATO took the view that the restructure was a taxing point, with the “Canvanauts”, as the company calls them selling the old shares issued in Australia, then buying new ones in the US parent company.
The “sale” triggered a tax bill for the Canvanauts and so they sold some of their stake to pay that tax bill
As most workers are painfully aware, we don’t have free cash flow lying around to deploy when needed.
