Smaller market share, but better net profits: loss or gain?

Discussion in 'General Trading Discussion' started by WaveWage, Nov 9, 2015.

  1. WaveWage

    WaveWage Well-Known Member

    Joined:
    Sep 2015
    Posts:
    243
    Likes Received:
    2
    We had a lot of earnings with a lot of numbers and situations about companies. Some are under the expectations while others are successful and makes investors happy. But there's also what I would call "corner cases", where it is not clear if the company did good or bad given a situation.


    For example, say a company with a market share of 5% and with $10 million of net profit. If the company, in their earnings, report they "loosed" -5% of their customers (meaning now, their market share is 4.75%) but have +3% net profits in their earnings. You consider the company is winning, or loosing? And why?
     
  2. turt

    turt Guest

    Joined:
    May 2014
    Posts:
    282
    Likes Received:
    1
    Profit is all that matters. Who cares how many customers you have if you aren't making any money? If they are making 3x the profit of the next competitor, they are doing a great job.
     
  3. WaveWage

    WaveWage Well-Known Member

    Joined:
    Sep 2015
    Posts:
    243
    Likes Received:
    2
    Don't forget why companies gets so much valued in stocks or in investment in general: this is the potential that's valued, not the direct net profits (otherwise, the shape of markets would be quite different given how many investments has been done companies loosing money every earnings). With customers, you have the potential to get more out of them, and you're less reliant on some kind of clients who can suddenly stop using your products or services suddenly. There's a kind of dependency and the numbers of customers breaks a bit this dependency apart more customers, so a loss of a lonely customer is less severe.


    Also, you're more likely to find more ways to monetize an increased number of customers.
     
  4. turt

    turt Guest

    Joined:
    May 2014
    Posts:
    282
    Likes Received:
    1
    That's true for the short term but long term, a profitable company is more likely to be successful. Look at how Apple became one of the most valuable companies by holding large margins.
     

Share This Page