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Market Value of a firm is defined as present value of expected future profits. In the...

Market Value of a firm is defined as present value of expected future profits. In the late 1990s and early 2000s, companies like Amazon and EBay, which had never earned a profit in the past, had very high market values. Please explain why this happened.

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Answer #1

Market Value of a firm is defined as present value of expected future profits. which means it does not depend upon the past data.

Companies like Amazon and EBay never earned the profit in the past but that does not mean that they will not earn a profit in the future.

The information regarding the expected future performance is reflected by the current market value. so to have a high market values, companies must have the large amount of expected future profit.

Companies like Amazon and EBay, are the main drivers of their today market and are expected to generate the high profit in coming future. Hence they had very high market values.

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