Well and their assets are massively depreciating. This is the best kept secret in tech: digital platforms DO depreciate except of course accountants don't know this. What's a tech platform worth after 5 years with no updates or maintenance?
I'm an accountant and yes we do absolutely depreciate software and tech just like any other asset. It's not a secret or anything you just don't know what you are talking about.
Fair point since I'm not an accountant I shouldn't speculate about their practices though I'm not talking about licensees with fixed terms I'm talking about the product offering / platform itself.
That itself would also be an asset. Think of building a website as a project much like construction of a building. It could take many months or years to build with all sorts of different costs going in, development costs, consultants, coders etc. Once the project is complete all those costs get rolled into an asset on the balance sheet and depreciated on a fixed schedule. If you don't make improvements eventually that asset is worth $0 on your balance sheet.
I'm not communicating my point very well it seems. The value of the platform approaches $0 much more quickly than the lofty PE ratios seem to justify. Within a few years they become liabilities. Yet they spend hundreds of millions per years on salaries to build them. If they are only worth their media library licenses scaled to their audience then their PE ratios should be similar to the duration of these contracts (ie ~10 not ~30+). Same is true for software such as windows where there's a need for constant improvements/updates. It's this pattern that I see throughout tech sector.
I think the issue here is that their PE ratios are > depreciation period. Like they're purposefully not factoring in long term costs to their valuations. Or they are but investors aren't
This basically proves my point. If it's only their catalog that has value at this point, then we're admitting 100% devaluation of the platform they built.
Well and their assets are massively depreciating. This is the best kept secret in tech: digital platforms DO depreciate except of course accountants don't know this. What's a tech platform worth after 5 years with no updates or maintenance?
I'm an accountant and yes we do absolutely depreciate software and tech just like any other asset. It's not a secret or anything you just don't know what you are talking about.
Fair point since I'm not an accountant I shouldn't speculate about their practices though I'm not talking about licensees with fixed terms I'm talking about the product offering / platform itself.
That itself would also be an asset. Think of building a website as a project much like construction of a building. It could take many months or years to build with all sorts of different costs going in, development costs, consultants, coders etc. Once the project is complete all those costs get rolled into an asset on the balance sheet and depreciated on a fixed schedule. If you don't make improvements eventually that asset is worth $0 on your balance sheet.
I'm not communicating my point very well it seems. The value of the platform approaches $0 much more quickly than the lofty PE ratios seem to justify. Within a few years they become liabilities. Yet they spend hundreds of millions per years on salaries to build them. If they are only worth their media library licenses scaled to their audience then their PE ratios should be similar to the duration of these contracts (ie ~10 not ~30+). Same is true for software such as windows where there's a need for constant improvements/updates. It's this pattern that I see throughout tech sector.
The new oil spills....
Depreciation is income
I think the issue here is that their PE ratios are > depreciation period. Like they're purposefully not factoring in long term costs to their valuations. Or they are but investors aren't
Netflix streams from Amazon AWS for their service
So it is only their catalogue which is losing value over time.
I've not gone through their accounts but I expect that cost has been re-couped (I might be wrong).
As for Amazon
Summary
https://www.forbes.com/sites/jasongoldberg/2022/02/04/amazon-reveals-its-most-profitable-business/
Actual filing
https://ir.aboutamazon.com/news-release/news-release-details/2022/Amazon.com-Announces-Fourth-Quarter-Results/default.aspx
This basically proves my point. If it's only their catalog that has value at this point, then we're admitting 100% devaluation of the platform they built.