A lot of companies, and particularly Amazon, always have an easy path to profitability in their back pocket. They simply choose not to be profitable because it means they'll pay less taxes and grow faster. It's a lot easier to "stick with it" with this in mind.
If you make $100k in profit, you pay 21% in taxes, so it turns into $79k.
If you instead invest that $100k into growth (eg. ads, sales people, marketers, engineers), you pay $0 of taxes, and can ideally generate an additional $200-300k revenue next year because of the investment.
Would you rather have $79k now, or $200-300k next year?
If you always invest, you'll grow faster and never pay taxes. With this in mind, why would these companies want to be profitable?
The major assumption here is that you have a way to invest $x now into $x+ in the future. A lot of SaaS companies have this down to a science via metrics like CAC, payback period, etc.
The risk section of an S-1, should be taken with a grain of salt. Half the items there are simply cookie cutter templates that simply provide protection if their stock goes to 0 and they get sued. Here's is the exact same line from coinbase's S1
> Due to our limited operating history, it may be difficult to evaluate our business and future prospects, and we may not be able to achieve or maintain profitability in any given period. [1]
You spend more money than you make to grow revenue and capture market share. Then you try to slowly become profitable over time. It's how nearly every growth company operates, whether it is a startup or public company.
is it safe to say reinvesting is counted as a loss for tax purposes then? How does the tax angle come into play, taxes are only on profit income not revenues?
Yes, taxes are only on profits. You don’t need a loss per se, you just need to reinvest everything.
The results would be crazy otherwise. Tech makes near 100% margins, grocery about 2%. But both industries would pay the same level of tax on 100% of revenue if it wasn’t profit based.
