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A lot of companies, and particularly Amazon, always have an easy path to profitability in their back pocket. They simply choose not to be profitable because it
by a13n 6y ago
A lot of companies, and particularly Amazon, always have an easy path to profitability in their back pocket. They simply choose not to be profitable because it means they'll pay less taxes and grow faster. It's a lot easier to "stick with it" with this in mind.
- jxramos 6y agothat's an interesting idea, could you comment on some of those deferred profitability strategies? How does that work precisely?
- weird-eye-issue 6y agoYou spend more money than you make to grow revenue and capture market share. Then you try to slowly become profitable over time. It's how nearly every growth company operates, whether it is a startup or public company.
- chmod775 6y agoSimply re-invest every bit of profit you would make. Build new locations, new services, hire more people, buy stuff, etc. Spending money isn't rocket science. Spending it wisely may be.
- jxramos 6y agois it safe to say reinvesting is counted as a loss for tax purposes then? How does the tax angle come into play, taxes are only on profit income not revenues?
- graeme 6y agoYes, taxes are only on profits. You don’t need a loss per se, you just need to reinvest everything. The results would be crazy otherwise. Tech makes near 100% margins, grocery about 2%. But both industries would pay the same level of tax on 100% of revenue if it wasn’t profit based.
- a13n 6y agoIf you make $100k in profit, you pay 21% in taxes, so it turns into $79k. If you instead invest that $100k into growth (eg. ads, sales people, marketers, engineers), you pay $0 of taxes, and can ideally generate an additional $200-300k revenue next year because of the investment. Would you rather have $79k now, or $200-300k next year? If you always invest, you'll grow faster and never pay taxes. With this in mind, why would these companies want to be profitable? The major assumption here is that you have a way to invest $x now into $x+ in the future. A lot of SaaS companies have this down to a science via metrics like CAC, payback period, etc.
- shakezula 6y agoBut SEMRush says this, right there in their report > We do not know if we will be able to achieve or sustain profitability in the future. This is a little different than Amazon running at a deficit to avoid taxes while they're consistently growing YoY. Taken at face value, this is them admitting they haven't been profitable for years and don't know if they ever can be profitable.
- weird-eye-issue 6y agoEvery single S-1 says that from companies like this. It doesn't mean anything
- nemothekid 6y agoThe risk section of an S-1, should be taken with a grain of salt. Half the items there are simply cookie cutter templates that simply provide protection if their stock goes to 0 and they get sued. Here's is the exact same line from coinbase's S1 > Due to our limited operating history, it may be difficult to evaluate our business and future prospects, and we may not be able to achieve or maintain profitability in any given period. [1] [1] https://www.sec.gov/Archives/edgar/data/1679788/000162828021003168/coinbaseglobalincs-1.htm#i86a9d9b35e45447ea6eb369e5dcf1e6a_1274 https://www.sec.gov/Archives/edgar/data/1679788/000162828021... You will also find "risks" such as "if we fail to add new customers, our business will fail."