Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Why Amazon Has No Profits and Why It Works

a16z.com

Post reply on HN
Print view View original

51–60 of 272 posts

Re: Why Amazon Has No Profits and Why It Works

#51

Post by SilasX »

macspoofing wrote: post #34
exelius wrote: post #24

I listened to a talk by Amazon's CTO, Werner Vogels, where he was explaining that Amazon's entire strategy is to build an infrastructure for itself, then rent that infrastructure out to its competitors. That way, increased competition can actually fuel your growth. The talk was about APIs, but Amazon views APIs as a general term: "Fulfilled by Amazon" is an example of a non-technical API. Likewise, I think Amazon's s…

That's all great but at some point they still need to turn a profit.

If you reinvest all profits, you're still turning a profit.

To say otherwise is to confuse the issue, even if technically correct in some contexts.

Re: Why Amazon Has No Profits and Why It Works

#52

Post by mkaziz »

ChuckMcM wrote: post #46
macspoofing wrote: post #34

Earlier quoted context omitted.

That's all great but at some point they still need to turn a profit.

As the article points out, they don't. By running the business this way they are constantly building / growing new businesses but during a downturn they just build more slowly (rather than lose money). It is a very different way of operating but one which has provided some interesting benefits for them. Nominally a business uses profits to either pay dividends or fund unexpected opportunities (like buying some small…

If they don't want a profit, what's their motivation for existing?

Re: Why Amazon Has No Profits and Why It Works

#53

Post by bengali3 »

Investing in themselves is the right thing to do from a finance perspective as long as they continue to have an overall internal rate of return greater than their cost of capital (IRR > WACC)

according to thatswacc.com, AMZNs Weighted avg Cost of Capital is 10.05%

So until their overall growth slows down to less than 10% per year they will have less pressure to return dividends.

AMZN (WACC 10.05%) net sales growth: 22% (2011-2012) vs 18% (2012-2013)

AAPL (WACC 9.45%) net sales growth: 31% (2011-2012) vs 8% (2012-2013)

From Wikipedia: "The WACC is the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere"

"a corporation will evaluate an investment in a new [x] versus an extension of an existing [y] based on the IRR of each project. In such a case, each new capital project must produce an IRR that is higher than the company's cost of capital"

For more info, see sources: http://en.wikipedia.org/wiki/Weighted_average_cost_of_capita... http://thatswacc.com/ http://www.investopedia.com/walkthrough/corporate-finance/4/...

Re: Why Amazon Has No Profits and Why It Works

#55

Post by amaks »

mkaziz wrote: post #52
ChuckMcM wrote: post #46

Earlier quoted context omitted.

As the article points out, they don't. By running the business this way they are constantly building / growing new businesses but during a downturn they just build more slowly (rather than lose money). It is a very different way of operating but one which has provided some interesting benefits for them. Nominally a business uses profits to either pay dividends or fund unexpected opportunities (like buying some small…

If they don't want a profit, what's their motivation for existing?

They do want the profit, they just keep reinvesting it to capex.

Re: Why Amazon Has No Profits and Why It Works

#56

Post by Pxtl »

macspoofing wrote: post #34
exelius wrote: post #24

I listened to a talk by Amazon's CTO, Werner Vogels, where he was explaining that Amazon's entire strategy is to build an infrastructure for itself, then rent that infrastructure out to its competitors. That way, increased competition can actually fuel your growth. The talk was about APIs, but Amazon views APIs as a general term: "Fulfilled by Amazon" is an example of a non-technical API. Likewise, I think Amazon's s…

That's all great but at some point they still need to turn a profit.

If all the profit goes back into the company to expand the company, is it somehow not "profit"?

Saying that Amazon doesn't make a profit depends on a misleading definition of the word "profit". Amazon's individual operations do generate a profit, except for the new bleeding-edge expansions into new businesses. Those things run at a loss, fed by the profitable wings of the company. And when they become profitable, they become a part of the other side of the machine and Amazon expands further.

Amazon simply chooses to invest every penny of profit into growth. Somehow we don't consider that "profit".

Re: Why Amazon Has No Profits and Why It Works

#57

Post by RaptorJ »

mkaziz wrote: post #52
ChuckMcM wrote: post #46

Earlier quoted context omitted.

As the article points out, they don't. By running the business this way they are constantly building / growing new businesses but during a downturn they just build more slowly (rather than lose money). It is a very different way of operating but one which has provided some interesting benefits for them. Nominally a business uses profits to either pay dividends or fund unexpected opportunities (like buying some small…

If they don't want a profit, what's their motivation for existing?

"Amazon" isn't a thing that has wants or feelings. You can not make a profit and still pay your executives a bundle of money.

Re: Why Amazon Has No Profits and Why It Works

#58

Post by zaidf »

mkaziz wrote: post #52
ChuckMcM wrote: post #46

Earlier quoted context omitted.

As the article points out, they don't. By running the business this way they are constantly building / growing new businesses but during a downturn they just build more slowly (rather than lose money). It is a very different way of operating but one which has provided some interesting benefits for them. Nominally a business uses profits to either pay dividends or fund unexpected opportunities (like buying some small…

If they don't want a profit, what's their motivation for existing?

It isn't that they don't want a profit, it's just that as long as they feel they can reinvest the profit relatively safely to make even more profit in the future, they will continue doing so.

Re: Why Amazon Has No Profits and Why It Works

#59

Post by hga »

paulhauggis wrote: post #28
cm2012 wrote: post #2

Interesting note: Over 50% of the volume and driving force of Amazon's huge merchandise growth mentioned in the article is from small ($100k - $20m a year) mom and pop businesses around the country selling on Amazon. I wrote a blog post about it a while ago - http://www.kevinlordbarry.com/amazons-little-known-world-cha... . a16z touches on this, but it has wider reaching implications than just Amazon's revenue.

This surprises me. I was a seller 5 years ago on Amazon and seller support was terrible. They use automated bots to ban your seller account and then offer no recourse or support beyond scripted emails. I would think that if sellers like me were bringing in that much revenue for Amazon..that they would treat me a little better. I guess this is the textbook example of why any sort of monopoly is bad.

The only monopoly I observe them having is in trust. If I see a seller with 96% or better feedback on a minimum volume of business, I have a lot of faith I'll be satisfied one way or another with the transaction.

Compare to eBay, where a fairly recent transaction by my father, buying an iPhone, was a scam, the cellular radio didn't work (rest including WiFi did), and the seller, who officially had a good reputation, knew exactly how to game the system so my father was out > $100.

Re: Why Amazon Has No Profits and Why It Works

#60

Post by nroach »

philip1209 wrote: post #3

Excellent analysis. > Amazon has perhaps 1% of the US retail market by value > With Amazon, Bezos is deferring that profit-producing, investor-rewarding day almost indefinitely into the future. This prompts the suggestion that Amazon is the world’s biggest ‘lifestyle business’ – Bezos is running it for fun, not to deliver economic returns to shareholders, at least not any time soon.

What is Walmart's % of US retail market?
Post reply on HN