Why Amazon Has No Profits and Why It Works • Hacker News Board

Re: Why Amazon Has No Profits and Why It Works

#131

Post by tim333 » Fri, Sep 05, 2014, 8:55 PM UTC

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?

Profit in this case is generally a quantity calculated by accounting rules (US GAAP probably) and is a different thing from wealth created. Amazon has produced a lot of wealth for it's shareholders, enough for Bezos to be worth ~$30bn build spacecraft as his hobby. The difference is more obvious with a company like Facebook. Say they spend $1bn building the company from zero to 500m users and at the same time receive $1bn in ad revenue. Their accounting profit is $0 but their wealth is a lot due to the value of the 500m users. There are advantages to keeping the GAAP profit near zero because you pay no corporation tax that way.

Re: Why Amazon Has No Profits and Why It Works

#132

Post by pmarca » Fri, Sep 05, 2014, 8:56 PM UTC

pbreit wrote: post #49

So basically, companies that switch to profit-making are indicating that they no longer know how to generate new acceptable returns on investment.

Bingo.

Re: Why Amazon Has No Profits and Why It Works

#133

Post by tim333 » Fri, Sep 05, 2014, 9:04 PM UTC

sliverstorm wrote: post #122

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.

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…

Both BRKA and AMZN have a lot of assets that could be sold for something like their market caps. Hence the value in each. Same way a gold bar is worth about as much as a gold bar even if you have no immediate plans to sell it.

Re: Why Amazon Has No Profits and Why It Works

#134

Post by burgers » Fri, Sep 05, 2014, 9:12 PM UTC

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…

It isn't a ponzi scheme because Amazon isn't dependent on new share purchases to keep running. It is a fully functioning operation that is in the black. It just isn't generating any real profits above its costs.

Amazon is worth money right now. Just like a lawn mower doesn't turn a profit on its own, but it is still worth something.

In the long term view, which Amazon definitely takes, this current process is just there to fund the final business. Which is providing infrastructure. It uses its current operations as a way to fund the build out of that infrastructure. The future of Amazon, in my opinion, is not selling books etc, but providing someone with the infrastructure to sell books. Its using its current book sales etc to fund that build out.

Re: Why Amazon Has No Profits and Why It Works

#135

Post by tim333 » Fri, Sep 05, 2014, 9:13 PM UTC

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.

>Bezos is running it for fun, not to deliver economic returns to shareholders

I that case he's done pretty well delivering ~$150bn in shareholder value accidentally.

Re: Why Amazon Has No Profits and Why It Works

#136

Post by larrys » Fri, Sep 05, 2014, 9:14 PM UTC

marincounty wrote: post #127

vasilipupkin wrote: post #68

Earlier quoted context omitted.

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, drone…

There is a saying "ask 10 doctors or lawyers get 10 opinions".

Well this is my opinion based on 35 years of business experience and having graduated from an Ivy business school as well. And reading, operating and observing business from before most HN readers were born. In other words not just reading blogs or online comments or whatever. It's a pattern that I've seen. Having seen bullshit of different types previously.

Sure I could be wrong "ask 10 doctors" but I do have a basis for my thoughts.

Edit: Because of course being in business and making a profit for 35 years means nothing to the younger generation on HN.

Re: Why Amazon Has No Profits and Why It Works

#137

Post by morgante » Fri, Sep 05, 2014, 9:16 PM UTC

marincounty wrote: post #127

vasilipupkin wrote: post #68

Earlier quoted context omitted.

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, drone…

> 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?

http://www.amazon.com/gp/help/customer/display.html?nodeId=2...

Re: Why Amazon Has No Profits and Why It Works

#138

Post by notastartup » Fri, Sep 05, 2014, 9:19 PM UTC

This part worries me a lot

    With Amazon, Bezos is deferring that profit-producing, 
    investor-rewarding day almost indefinitely into the 
    future.

It kind of sounds like never.

Re: Why Amazon Has No Profits and Why It Works

#139

Post by samstave » Fri, Sep 05, 2014, 9:41 PM UTC

chriskelley wrote: post #74

vinceguidry wrote: post #66

Earlier quoted context omitted.

> 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. This was the game played by John D. Rockefeller. He had so much infrastructure built up by the time they split up Standard Oil, that each new state Standard Oil immediately had everything it needed to keep operation…

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

You can also watch "The men who built america"

Re: Why Amazon Has No Profits and Why It Works

#140

Post by melvinmt » Fri, Sep 05, 2014, 9:47 PM UTC

sliverstorm wrote: post #122

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.

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…

AMZ is 910 P/E, so yes, you're paying quite a premium on today's value.