Profits Are For Losers
How is it that some of the biggest and most successful brands don't earn a cent in profit?
Businesses are about making money, right? Yet many of the biggest and most successful brands often don't earn a cent of profit. Or worse yet, even make a loss year on year. During the pandemic, there's always news about huge companies thriving: Amazon, Uber, Deliveroo and Tesla. All these major services are dominating the markets with no end in sight. But besides great sales during lockdown, they have another thing in common: they are all unprofitable businesses.
Okay, Amazon has been making good profits over the past 5 years, but for a long time, the company was either at a loss, or was making negligible gains. As for those other brands, most of them haven't made a penny in profit for several years. Yet the value of these companies has gone up, and to those who buy and sell the company shares, that's all that matters.
With the likes of UberEats and Deliveroo (and virtually all other food delivery services), they aren't positioned to make any profit. Even when they have a high volume of customers. The drivers need to get paid sufficiently, otherwise they'll find jobs elsewhere, and customers are unwilling to pay a high fee on top of the prices set by the restaurants. This balancing act makes it difficult for these companies to earn any money beyond covering their expenses.
So why do the creators of these companies even bother? All that time and energy- what's it all for? And why do we always hear about wealthy owners earning ridiculous sums of money, especially during recessions?
Profits are useful, but ultimately, it's belief that drives any successful business. The markets and investors believe these companies are valuable. Or they believe that they will become valuable., So they continue to support them, even if they don't earn a dime from it. Because one day they can cash in their shares for a serious return on investment. And with disruptive brands like Amazon, many of the investors are in it for the long haul, profitable or not.
Every year, Jeff Bezos sells a few of his shares. In the first few years of Amazon, this income probably would have fed him for a week or two. But now, selling half a million shares leaves him with over a billion dollars, cash in hand (and he has plenty more shares where that came from).
But not all billionaires are made equal. Those who can't sell company shares like that just ring up their banks. The banks are always ready to lend them unthinkable sums of money. To buy a new jet, some new property or to invest in a new subsidiary company. And it's the banks and financial investors who keep these companies afloat, who cover their expenses and the employee salaries.
It may feel risky, if not downright dangerous, to lend your money to a business who can only pay you back after indefinite years or even decades. But imagine watching the Amazon stocks skyrocket, and then laughing your way to the bank, because you've been buying their shares and supporting its growth from its infancy. High risk can mean high reward, as long as the people you're investing in have the skills and acumen to corner their market and keep customers hooked to the point of myopia.