How do these tech companies continue operating at a loss every year? Net loss for these companies reach hundreds of millions yet they are still operating till this day
In: Economics
Companies get their money (mostly/partially) from investors, people who are willing to give the company money. Generally investors are essentially betting that the investment will pay off at some point in the future. For example let’s say my neighbor wants to open a restaurant but needs more money, so he comes to me and says “hey, if you give me $10,000 to open my restaurant I will give you 50% of the profits from the restaurant.” I give him the $10,000 because I’m betting that, over time, 50% of the restaurant’s profits will be more than $10,000. I’m not necessarily betting that I’ll make my money back right away, just that I will do so eventually. So you are frequently investing not based on how a business is doing *right now* but how it will do in the future.
Some of these tech companies have really high potential, so people are willing to accept losses because if the company figures out how to turn a profit the investors can make lots of money. As an example if you purchased $100 of Amazon stock on the day it went public in 1997 that stock would now be worth around $120,000. So people are willing to invest in, to keep giving money to, companies like Uber that lose money each year because they are betting that the company will eventually make a lot of money.
Latest Answers