Comment by deetsb | Hacker News Reader

Comment by deetsb | Hacker News Reader

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I'm not quite sure I agree with your words here; generally speaking, net income is profit (accounting profit, to be precise -- there are other profits but we normally talk about accounting profit).

Secondly, revenue is super not meaningless! It's the capacity for you to be profitable! Amazon had 0 net income but were able to spend money on growth because they had revenue, and were able to classify their R&D as an expense, which pushed their profit/net income down. Without that, they would've been a positive net income/profit company who then reinvested net income/profits into R&D.

You can do all the expense classification shenanigans you want to to muck around with profit (ex. have profit & spend that on growth, or classify your growth as an expense and have no profit), but it's a lot harder to grow without having the money to put to growth. You'll get that of course in two ways -- increasing capital (equity/liabilities), or well, revenue!

EDIT: Had some typos so cleaned them up.

I wrote profitability exactly for this reason. Revenue in itself is just as meaningless as profitability, I agree. (That's what aggregates like NPV [net present value] and other indicators are for.)

RedHat is big, it has a lot of revenue, but it also has a looot of expenses too. Hence it's profitability is low. Whereas Amazon is a lot more profitable (even if it had no accounting profit), and that's exactly how it grew this big.

If RH were this profitable it would have probably also grown bigger too.

Of course some business models, sectors are truly niches, and you can't grow arbitrarily big. RH probably suffered from this to a degree. Selling Linux support is a niche market compared to selling almost everything that can be shipped in boxes. Of course both Amazon and RH are survivors of the early 2000s big boom-bust cycle, so probably there's a big survival bias and chance/luck at play here, so it's probably not right to say that RH should have expanded to bigger markets. (How come "AWS" is not a RH thing? It's likely that Amazon's extreme "black friday" scaling challenge it not unique to them, yet they were the ones able to successfully capitalize on this.)

Perhaps this would inform the discussion better, but how do you define "profitability" if not by accounting profit? There has to be a strict measure in order to make sense of things. As. I said before, the convention is to use profitability = accounting profit.

I judge by your statements of RedHat's expenses/revenue/profitability that you're defining it as operating profit? That's not a great measure to look at things: certain sectors can expense things and make a mess of it - like depreciation & R&D.

That's also a measure of the core operating portion of the business alone, it. doesn't include non-core portions, nor spending on investments/divestitures (although the latter should show in pro formas or future reports. Also to be fair that would never be counted in a profit definition, but judging from what you find important, I suspect you would prefer to include it? ).

NPVs are calculated by Free Cash Flow streams discounted at whatever your discount rate.

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