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If the point of a business is compensating its employees, that might be a strategy. However, that isn't the point of the business. The point of the business i

by mdasen 11y ago

If the point of a business is compensating its employees, that might be a strategy. However, that isn't the point of the business. The point of the business is to generate money for the shareholders. Over the short/medium term, shareholders might be content with growth and revenue. Over the long term, without profits the business has nothing for shareholders. It really isn't a tax strategy any more than being unemployed with no income is a tax strategy. Amazon's strategy seems to be keeping margins low enough that it's hard for others to compete with them, in the hopes of great long-term profits. While the stock may be valued on its revenue, that valuation is premised on the idea that Amazon will be making a lot of profits from that high revenue in the future. Investors aren't buying Amazon stock believing that it's avoiding profit as a tax strategy to funnel money to employees. They're buying Amazon stock believing that it's the future of retail and that being the future of retail will come with enormous profits.

deleted 11y ago
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ISL 11y ago
The point of a business is whatever its shareholders want it to be.
ethbro 11y ago
I don't claim to be especially economically savvy, but isn't the fundamental premise that there's a bounded conversion between revenue and profit? Iow, that one can trade a decrease in revenue for an increase in profit by certain business decisions. If so, then it's natural that stock price increases when revenue increases, albeit at a discount to actual profit depending on what your expected revenue:profit conversion ratio is. The interesting part is the next step. Someone buys a stock expecting to benefit from the exchange (sell at a higher price that one purchased it for). Thus, if the stock price is correlated with revenue, and Amazon can increase revenue even without increasing profit, stockholders will still be happy.* Stockholders are looking for increased value for their stock, not any particular metric thereof. *This is assuming Amazon finances the revenue increases through free cash flow (as mentioned elsewhere) rather than diluting stock
M2Ys4U 11y ago
>If the point of a business is compensating its employees, that might be a strategy. However, that isn't the point of the business. The point of the business is to generate money for the shareholders. Interestingly the Bank of England's Chief Economist has today attacked that principle of company law: http://www.bbc.co.uk/news/business-33660426 http://www.bbc.co.uk/news/business-33660426 To quote from the article: The Bank of England's chief economist has expressed concern that shareholder power is leading to slower growth. Andy Haldane told BBC Newsnight that business investment had been lower than was "desirable" for years. One reason was that a high proportion of corporate profits were being paid out to shareholders rather than reinvested in the company. He said that in 1970, £10 out of each £100 of profits were typically paid to shareholders through dividends. Today, however, that figure was between £60 and £70. Mr Haldane argued that left far less cash available for growth-boosting investment and that firms risked "eating themselves". Corporate short-termism - a focus on immediate gains rather than long-term prospects - was a rising problem for companies and pre-dated the financial crisis, he said.

by mdasen 11y ago

deleted 11y ago

[deleted]

ISL 11y ago

The point of a business is whatever its shareholders want it to be.

ethbro 11y ago

I don't claim to be especially economically savvy, but isn't the fundamental premise that there's a bounded conversion between revenue and profit? Iow, that one can trade a decrease in revenue for an increase in profit by certain business decisions. If so, then it's natural that stock price increases when revenue increases, albeit at a discount to actual profit depending on what your expected revenue:profit conversion ratio is. The interesting part is the next step. Someone buys a stock expecting to benefit from the exchange (sell at a higher price that one purchased it for). Thus, if the stock price is correlated with revenue, and Amazon can increase revenue even without increasing profit, stockholders will still be happy.* Stockholders are looking for increased value for their stock, not any particular metric thereof. *This is assuming Amazon finances the revenue increases through free cash flow (as mentioned elsewhere) rather than diluting stock

M2Ys4U 11y ago

>If the point of a business is compensating its employees, that might be a strategy. However, that isn't the point of the business. The point of the business is to generate money for the shareholders. Interestingly the Bank of England's Chief Economist has today attacked that principle of company law: http://www.bbc.co.uk/news/business-33660426 http://www.bbc.co.uk/news/business-33660426 To quote from the article: The Bank of England's chief economist has expressed concern that shareholder power is leading to slower growth. Andy Haldane told BBC Newsnight that business investment had been lower than was "desirable" for years. One reason was that a high proportion of corporate profits were being paid out to shareholders rather than reinvested in the company. He said that in 1970, £10 out of each £100 of profits were typically paid to shareholders through dividends. Today, however, that figure was between £60 and £70. Mr Haldane argued that left far less cash available for growth-boosting investment and that firms risked "eating themselves". Corporate short-termism - a focus on immediate gains rather than long-term prospects - was a rising problem for companies and pre-dated the financial crisis, he said.