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Why Amazon Has No Profits and Why It Works

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Re: Why Amazon Has No Profits and Why It Works

#121

Post by jusben1369 »

walshemj wrote: post #67
jusben1369 wrote: post #39

I found this fascinating to read but made very difficult in part due to the overuse of commas. Maybe the folks at a16 could have this proof read. Investors in Amazon typically look to selling their stock for higher than they bought it as the way they "get their money out of their investment" So not sure why the fascination on profits. Profits are important if they become the means to achieving a higher stock price. B…

In an era (which is coming to an end) of fabulously cheap money though - I suggest you and read the intelligent investor by graham and re think your view that profits an dividends don't matter

It's worth comparing to Apple who's stock price went backward when growth slowed (even though cash was piling up literally by the billions) AMZN could create profits but, unlike Apple, it wants to take every penny and reinvest it directly into new markets.

Re: Why Amazon Has No Profits and Why It Works

#122

Post by sliverstorm »

jmccree wrote: post #93
sliverstorm wrote: post #85

Earlier quoted context omitted.

So if they will never pay dividends, why is their stock worth anything?

Because you can sell it for more than you bought it for. Look at Warren Buffet's Berkshire: You would have doubled your money in 4 years if you bought in 2010. They've pretty consistently increased the value of their shares without paying a dividend in 50 years or so.

Berkshire Hathaway holds liquid assets though. It makes perfect sense that a holding company with $1B in liquid assets should have a market cap of $1B, and from there any growth in their holdings translates to a growth in market cap. There's a clear equity/stake relationship. There's even a clear speculative-equity/stake relationship.

Amazon is completely different from that, no? A tremendous amount of their value is in intangibles that produce revenue, rather than have intrinsic value. This is fine when you say "I want to own a piece of that revenue stream for the future profits", but if Amazon by choice will never produce net profits from that stream... do you see what I'm getting at? A goose that lays golden eggs has no value if the eggs are never sold and simply hatched.

Re: Why Amazon Has No Profits and Why It Works

#123

Post by MaysonL »

AndrewKemendo wrote: post #48

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. Sorry but that is ridiculous. Look at the stock price for Amazon. Anyone who has invested in Amazon has seen an a…

Amazon is making substantial profit, but not taxable profit: it takes the profit in warehouses rather than cash.

Re: Why Amazon Has No Profits and Why It Works

#124

Post by cellis »

apalmer wrote: post #104
jmccree wrote: post #93

Earlier quoted context omitted.

Because you can sell it for more than you bought it for. Look at Warren Buffet's Berkshire: You would have doubled your money in 4 years if you bought in 2010. They've pretty consistently increased the value of their shares without paying a dividend in 50 years or so.

Absolutely understand what you are saying. But isn't that by definition a hot potato Ponzi scheme? I mean there are large monster e-commerce giants in other nations, it is a very real possibility that Amazon will have to battle with some company at scale who is also in the razor sharp margin mindframe. Its not impossible to imagine a world where amazon gets into a war with an Asian e-commerce giant for domination of…

But in the meantime, there is money to be made in holding on to it. Look at AMZN speculation like Bitcoin speculation: there's really no intrinsic value of a Bitcoin or AMZN share, except that others want them and there's a finite supply of them, and also there is some underlying (quickly growing) market that they represent, which means that the shares should also grow in value.

Couple that with a nice PR machine ( can't understate the value of people like PMarca writing about how amazing they are ) and you've got a way to reliably grow your portfolio.

Re: Why Amazon Has No Profits and Why It Works

#125

Post by jmccree »

apalmer wrote: post #104
jmccree wrote: post #93

Earlier quoted context omitted.

Because you can sell it for more than you bought it for. Look at Warren Buffet's Berkshire: You would have doubled your money in 4 years if you bought in 2010. They've pretty consistently increased the value of their shares without paying a dividend in 50 years or so.

Absolutely understand what you are saying. But isn't that by definition a hot potato Ponzi scheme? I mean there are large monster e-commerce giants in other nations, it is a very real possibility that Amazon will have to battle with some company at scale who is also in the razor sharp margin mindframe. Its not impossible to imagine a world where amazon gets into a war with an Asian e-commerce giant for domination of…

I don't think Ponzi scheme applies at all. In this case, the value and price of a share is based on the actual revenue growth of amazon from non-investor provided income. If amazon was taking on new investors to pay out money to old ones, it might apply.

It's certainly possible amazon could end failing and the stock would end be worthing much less than expected. It seems unlikely the name brand, market capture, datacenter and distribution facilities, etc would not end up with amazon being acquired by a walmart or something ala AOL/TW.

Re: Why Amazon Has No Profits and Why It Works

#126

Post by Estragon »

This is a familiar argument, but you have to admit there's a lot of wishful thinking involved because Amazon is so opaque about its operations and finances. Bezos is basically saying "Trust me." I don't blame people who do, he's an amazing guy. Still, it's interesting to see how widely views about the company can differ, based on apparently rational analysis of exactly the same financial reports.

http://seekingalpha.com/author/paulo-santos/articles/symbol/...

While this guy seems to have lost his shirt betting against AMZN over the past couple of years, his bearish analyses of its valuation are quite precisely articulated and make interesting reading.

Alibaba may eat the 3P revenue: http://seekingalpha.com/article/2263623-this-is-amazon-coms-...

Amazon.com's profitability decline is structural and tied to its sales mix: http://seekingalpha.com/article/2169003-the-latest-developme...

I wouldn't short this monster, though, at least not until QE ends.

Re: Why Amazon Has No Profits and Why It Works

#127

Post by marincounty »

vasilipupkin wrote: post #68
larrys wrote: post #62

Earlier quoted context omitted.

You know what? Amazon, Werner and/or Benedict Evans can spin it anyway they want (like the kid who gets caught with his hand in the cookie jar) but the bottom line is they aren't making money and haven't pinned to a date they plan to do so. (So making arguments as far as one business unit vs. another don't matter many business operate the same way and in sum make money.) All the long winded explanation of the circums…

your comment is at best a gross exaggeration. They are making money, but they are re-investing that money at a crazy rate into new businesses. That represents a huge bet, which their shareholders are willing to take on. The alternative would be to pay out cashflow from operations to shareholders in the form of dividends, or grow slower. But look at the stock price over the last 5 years - clearly, investors want to ta…

I too am curios about the down voting, but this site is sometimes so polarized, or stifling with political correctness it's nauseating.

Jeff Bezos can do no wrong in this market place; that is where we have a somewhat growing marketplace for certain professions. Professions that provide a livable wage, with a few dollars left over after rent in order to spend on Amazon.

Besides Jeff's vanity projects(newspaper, drones, I don't fell like doing a bunch of research)--his business model has one glaring flaw. He needs cheap gas. There is good reason why have huge trucks that move a large amount of goods from one location to a more convenient location. Don't get me wrong I like Amazon. I am surprised he hasen't bought up some of the dirt cheap commercial Realestate and put in Amazon retail outlets. Outlets that just provide a place where customers could pick up their packages. Hell--he could automate them, and they could be open 27/7?

Re: Why Amazon Has No Profits and Why It Works

#128

Post by hnnewguy »

AndrewKemendo wrote: post #102
hnnewguy wrote: post #82

Earlier quoted context omitted.

> Anyone who has invested in Amazon has seen an amazing unprecedented ride upward Only if they sell to realize those gains, and that can only occur if they can find a buyer who has an even greater expectation of profit in the future. This concept seems to elude people, but the value of a company that never makes a profit is precisely $0.

This concept seems to elude people, but the value of a company that never makes a profit is precisely $0. As others have stated profits = revenue - expenses. In this case they are positive on the right hand, even if slightly, so they are in fact making profits. Your time horizon is also wrong and assumes that there needs to be a singular point where the top level goal becomes making profit, rather than profit being a…

>Your time horizon is also wrong and assumes that there needs to be a singular point where the top level goal becomes making profit

The top level goal is to provide an adequate return to shareholders. Shareholders (of which I am one) allow massive re-investment with the expectation that net earnings in the future will increase.

If you purchase ownership in Amazon (or any other company) for any reason other than to earn a share of their income, that's your prerogative. But you are in a very small minority.

Re: Why Amazon Has No Profits and Why It Works

#129

Post by hnnewguy »

mseebach wrote: post #99
hnnewguy wrote: post #82

Earlier quoted context omitted.

> Anyone who has invested in Amazon has seen an amazing unprecedented ride upward Only if they sell to realize those gains, and that can only occur if they can find a buyer who has an even greater expectation of profit in the future. This concept seems to elude people, but the value of a company that never makes a profit is precisely $0.

Amazon makes a profit, it just invests all of it in itself, returning you a more valuable stock instead of a dividend. Investors let them do it because the investment made with the profit is worth more than the cash would be. Even with all that, the value of a company that doesn't turn a profit isn't 0, it's the value of it's assets, and Amazon has a lot of those.

>the value of a company that doesn't turn a profit isn't 0, it's the value of it's assets

Touche. They also have liabilities.

I suppose we could be even more precise and say the price is $0 above the expected value of the net assets at the time of liquidation. But my point stands.

Re: Why Amazon Has No Profits and Why It Works

#130

Post by AtmaScout »

TrevorJ wrote: post #79
chriskelley wrote: post #74

Earlier quoted context omitted.

Great write-up, really piqued my interest in Rockefeller. Any good reads you can recommend?

The documentary series "The Men Who Built America" is a really well done overview of some of these guys.

I wish this was on Netflix streaming. I find this type of history really appealing.
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