Forecasting competitive advantage period or predicting companies long term earnings growth. Really?

Is it really possible to predict how long companies can retain their competitive advantage period or their growth plans even 3 years ahead? Lets consider 3 famous companies of Wall street: Amazon, Apple and Paypal.

An investor in Amazon and Apple in 2005 couldn’t have predicted that these companies are building new competitive advantage businesses through Cloud AWS and IPhones. Similiarly 2 years back, no investor could have had the clairvoyance to see Paypal becoming top 5 small business lender in US. So how in the world can analysts or investors forecast earnings growth, competitive advantage period or even business plans of any company for that matter.

I have applied Ashwath Damodaran`s valuation paper on building competitive advantage or increasing length of growth period. Its so timely because there was a recent news on Jeff Bezos letter to his employees with tagline “One day,  Amazon will fail but our job is to delay it as long as possible”. This resonates well with the 2 prong approach stated in Ashwath Damodaran’s paper ie either to create new competitive advantage which Amazon did through AWS or to prolong the growth period.

I have taken that slide and applied the hypothesis on Amazon below. One can see how relevant it is to accept the fact that its really difficult to predict what companies can build in the long term.

Ashwath Amazon Competitive

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