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Profit Max. vs Wealth Max. M. Berkan Sonmez& Warren ChannellIBA15-Marketing-10/27/2015
1
Current Valuation: Up to $20.48 billion
-Founded in 2006, Twitter didn’t make any money until 2014, but its revenuedoubled to more than $420 million in the first nine months of 2013.
-Twitter was projected to generate $1 billion in revenue in
2014, and beet their projections by earning $1.397 billion by the end of the year.
2
Current Valuation: $11 billion
-The company had two huge financing rounds in 2013 and an additional round in early 2015. The company is quickly becoming one of the most high-valued private tech companies on earth. -Investors are big on
Pinterest because it attracts young, high-income women, a key
advertising demographic.
3
amazon
Current Valuation: $280.2 billion- Surprise! The world’s largest online retailer just posted a $188 million loss in its most recent quarter.
- Current losses are part of an aggressive expansion across multiple sectors.
-Investors don’t seem to mind as Amazon’s stock price has increased by more than $100 per share, since the start of 2015.
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A financial concept that a company can implement to make the most profit in the short run.
Profit Maximization?
6
Wealth Maximization
A financial concept that a company can implement to increase its value in the long run. 7
Concept > Strategy > Practice
Implementation : -Wealth Max -Profit Max
8
PROFITPROFIT
SOCIETYMARKET SHARERISK & TIME
PROFIT MAXIMIZATION(Short Run)
VS. WEALTH MAXIMIZATION(Long Run)
COMPANY
CREDABILITY
VALUE OFFERING
10
What is the bigdifference?
Profit Max = Short Run Concept Ignoring the timing of returns, cash flows, & risk.
Wealth Max = Long Run Concept Including the timing of returns, cash flows, & risk as a decision making variable.
TIME
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Are theysuccessful?All companies are willing
to generate profit and have a better cash flow.
Few companies focus on other aspects like:
Sales, Market Share, Risk, Credibility, Etc.
Wealth Max. = Success.13
How can theysurvive?
-Eventually a Wealth Max. approach may look bad from the outside because of years of loss or “0” dollar profit.
-However, investors are also more likely to invest on long term players because of future growth possibilities and value creation.
14
Profit Max vs. W
ealth Max
Concept > Strategy > Practice
Simple vs. Broad
Myopic vs. Broad Spectrum
Old vs. New
Short & Long
Volatile vs. Sustainable
15
In Conclusion
THANK YOU
“CEOs who put stakeholders’ interests ahead of profits generate greater workforce engagement and thus deliver the superior
financial results that they have made a secondary goal.” – Harvard Business Review
(December, 2009)16