Why do shares in some companies that have a net loss annually increase in price?

Question

I have recently noticed in some companies (technology-based ones in particular) that they end up in a net loss in their annual report (sometimes for the past several years), although their share prices still increase (e.g. Atlassian, Salesforce, etc). Of course, no one can (probably) describe exactly "why" this occurs, but I'm curious to hear your thoughts. Cheers!

Answer 1

this companies have losses because they invest much money on Research Development. But the price still increase because shareholders trust the company. This is one of the reasons

Answer 2

The fair price of a share is the discounted net present value of all its future dividends

If a company pays no dividend today, it might start paying dividend in the future.

Consider, for example Tesla. It mostly makes loss. However, Tesla is the market leader in electric vehicles. By having the leader position currently, investors are expecting that Tesla could in someday start paying dividend. There are high barriers to entry in electric vehicle business. For example, if you do not have enough battery manufacturing capacity, you cannot sell electric vehicles in great numbers, even if you happen to have an idea of how to manufacture the vehicles.

A similar argument applies to companies not paying dividend currently but not making loss. For example, Berkshire Hathaway is a very profitable business. It pays no dividend. Or at least that's the case currently. Yet, they will run out of businesses to purchase eventually and there will be no other options to paying dividend. They can't just start hoarding cash in a low interest rate environment. Thus, investors are expecting Berkshire Hathaway will start paying dividend at some point of time, and are valuing the share positively.

Those software companies you mentioned still have the copyrights to the software they have developed. Even though the business is not profitable now, investors are seeing a future Microsoft in them. Whether or not the investors are correct is a good question, but if the consensus among investors is that the businesses become profitable and start to pay dividend, then laws of supply and demand drive up the stock price to a positive and often quite large value.