Companies like Uber for example have claimed to have never made a profit, and have been in the hole this entire time they’ve been in business, burning money each year (this is just from what I’ve heard, I’m not sure if this is entirely true or not). Yet the owners and investors of the company have made a lot of money as far as I know. A few shark tank guests were early investors in Uber and they have made a good chunk of money from it but how does that happen if the company has never made a profit?
In: Economics
Just look at bitcoin. Billions of dollars in ‘value’ for an imaginary (even by fiat standards) currency, nothing was created, no value provided and yet so long as someone is willing to buy it for a higher price then someone is making money. Non-profitable companies are no different, so long as someone is willing to buy/sell them then there will be someone making money off of them.
That’s the “how” you asked, perhaps the better question would be ‘why.’ In the case of most publicly traded companies the answer is simply because *someone* thinks they can sell it for higher in the future. They don’t care about the business, they may not even believe in it at all (ie sin stocks), it’s pure trading. Others buy for the long hold, they think Uber is a good concept and might become profitable in the future. If they wait until it’s a proven concept, paying out dividends and all that fancy jazz then there won’t be nearly as much profit to be had. Some bigger fish (corporate raiders) buy nonprofitable companies if they feel it’s at less than scrap value with the intention of parting them out.
Tldr; as long as someone is willing to buy something then it has value.
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