Can some one explain to me how companies can continue operating when they aren't profitable?
Companies like Lyft, Uber and Amazon are either rarely or never profitable so far. How do people make money from an unprofitable company? How do they keep the lights on if they are hemorrhaging money?
Not a finance guy, obviously, just curious what to make of stuff I hear on the news.
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sell stock, borrow from bank, etc..
The thing is they can sell all of their assets and pay off the loans in an instant. A business isn't measured by how much money it HAS, but rather by how much money it has invested and how much money those investments make.
i think its like the same principle as if, say, a person just keeps openng credit cards, maxxing them out, then paying the minimum balance... indefinitely, forever and ever
Money flow. You can make money with money. Amazon has insane money flow.
No company is able to operate without a ''profit'', that would obviously be nonsensical and self-contradictory. These companies you mentioned are just not making a profit in the standard sense, that is, by getting more money from its consumers than the money spent investing in its services, but that doesn't mean their services aren't profitable when looking at the bigger picture. They just have other means of profiting.
amazon is crazy profitable but everything is re invested into the business + stock buybacks
OP here.
So basically when they say on the news that this or that company has never posted a profit or whatever, what they mean is that they are actually making a shit ton of money but then reinvesting that capital? This seems like a strange way of saying that.
>They just have other means of profiting.
Like what?
It's a way of avoiding tax for Bezos as well I think
>Like what?
Depends. Selling data from users is probably something most companies do, getting money from investors like other anons pointed out is another.
Even if your business doesn't make a profit in the standard sense it'll attract investors money and government interest, which can result in profitable lobbying, as long as it's used by a lot of people. This is why Amazon can keep operating at ''loss'' for so long and why Google say Youtube doesn't make a ''profit'', all of those businesses are incredibly profitable, difference being they are getting the profit from selling data, from lobbying and from investors money interested in the popularity of their service.
Everyone in this thread is an utter retard. Zero and negative interest rates are the answer. There are cash flow negative companies in two categories. One of the categories is known as “zombie” companies and the other is popular start ups like Uber Tesla Netflix etc. These companies are sustaining operations with low interest rate bond issuances for relatively large amounts. If you want to see how tight or loose corporate credit is you should check credit spreads. The ECB and BOJ put a huge bid under the corporate bond market because they were purchasing European and Japanese corporate bonds which bled into all corporate bonds. Amazon and Apple can borrow money for roughly the same cost as the US government. Amazon is a unique situation because their core product loses money but their AWS business generates huge profits and huge cash flow they are using to subsidize their other businesses.
Why continue subsidizing unprofitable business instead of focusing on AWS? Do they think they could become profitable at some point?
they can buy up there stock.
It would be similar to, for example, the ripple CEO buying up the ripple order book and then burning the tokens.
Company begins operating
Company is growing but burning cash
Investors put in money at different stages (Equity raises: Series A, B , etc)
Company gets loan from bank to further increase cash balance
Company continues to burn cash but is hopefully growing a lot
If Company continues growing, then investors will usually continue to fund the company
At a certain point, the Company will raise cash via an IPO and the investors can obtain a massive return on their investment
At a certain point the company is able to achieve cash flow positive operations through strong growth and cost efficiencies
>t. tech banker
Control over economies = Profit
IN. VEST. ORS.
It's a way to avoid tax. Would you rather pay tax on gains? Or put those would be gains into new projects and have a net loss and not worry as much about taxes.
Money is almost free, thanks to central banks.
SELLING SHARES
to own the world