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Has Profit Become Passé?

11/16/2017

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In last week's message, we described the six steps of The Value Cycle and explained how a firm sacrifices some of the value of its assets in order to generate profit.

But, is it possible for a company to continually sacrifice assets without generating profit and still remain a going concern, favored by the capital markets? Apparently so.

Picture
Groupon has never turned a net profit despite $15 billion in sales since 2012

Below is a list of firms which have generated little to no profit over the course of many years, and yet remain in operation:
  1. Groupon
  2. Tesla
  3. Uber
  4. Spotify
  5. SnapChat
  6. Twitter
  7. Yelp
While that is an abbreviated list, the question remains: How can a supposedly for-profit enterprise, consistently make losses and still stay in business?

Maybe it all boils down to the question of “How long is the long run?”  

Logic tells us that you can’t keep sacrificing value forever. The investor must believe that there is value creation over some horizon. 

Peter
Picture
Twitter has never turned a net profit despite $7 billion in sales since 2012

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