If Amazon and similar corporates haven’t turned profitable, then how are they paying their shareholders/investors?
In: Economics
Profit is a weird thing in companies. The main business line can be making a profit, but that profit is being expended elsewhere in the idea of “expanding the business”.
Most shareholders care about the value of their stocks. Their stocks are based on the perceived value of the company. As the company grows, that value goes up, so their share prices go up.
As for investors getting paid, since those are debts held by a company, they are reflected as debts on the balance sheets. They are taken into consideration before deciding whether or not there is a profit.
First, shareholders/investors are more interested in share values than profitability or dividends.
For example, let’s say I’ve bought an Amazon share at $200, and now it costs $1000. That is $800 I’ve made on this investment. The dividends, on the other hand, would probably be around $5 a year in THE BEST case scenario – in other words, quite negligible compared to how much I’ve made on the investment. And Amazon actually doesn’t pay out dividends for this exact reason – the investors want to see company valuation growth (and respectively share value growth) a lot more than the dividend payouts.
Additionally, a lot of these companies are not profitable because all the potential “profit” goes into expanding the current business and acquiring new businesses.
To give another example, let’s say I’ve made $100 this year in revenue. The expenses were $50, and I borrowed an extra $10 to invest $60 into a new business. So technically I didn’t make a profit (even though I easily could) because all my money went into growing and expanding my current business.
amazon investors don’t get paid by the company. not all stocks pay a dividend. after the IPO, the company’s stocks don’t have any direct connection to the company’s finances. you’re not buying selling with the company, but other existing holders
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