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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

#151

Post by x0x0 »

sliverstorm wrote: post #85
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…

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

the hope (gamble?) of price appreciation

hedging

diversification

lottery tickets on bezos owning a significant fraction of world commerce

Re: Why Amazon Has No Profits and Why It Works

#152

Post by veb »

gnaritas wrote: post #149
veb wrote: post #148

Earlier quoted context omitted.

Hmm, does his charitable efforts these days make up for the pain and suffering he caused back when he was a barracuda? (nice term, btw). I like to say yes. I think. I mean, he may have destroyed hundreds of people's livelihoods/jobs/companies, but his efforts these days are literally saving peoples lives. Does anyone have an opinion on this? I'm a firm believer people can change and while this might not be Bill Gates…

> Hmm, does his charitable efforts these days make up for the pain and suffering he caused back when he was a barracuda? No. Changing doesn't remove your past sins and helping one person doesn't balance your hurting another. To believe so would mean saving a life makes up for taking another life, obviously it doesn't.

Great point, didn't think of it like that.

Re: Why Amazon Has No Profits and Why It Works

#153

Post by TeMPOraL »

pdpi wrote: post #35
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…

> The talk was about APIs, but Amazon views APIs as a general term: "Fulfilled by Amazon" is an example of a non-technical API. It's not a "non-technical API". We have name for those things: they're services. Amazon provides services, and that extends to both digital services (with which you interact via APIs — that P stands for Programming, damn it!), and meatspace services.

That's what I'm actually hoping will happen to services - that they will actually become function calls.

For instance, why can't I install a local print shop as a system printer? I do some graphics work, then I click File->Print..., pick the "Printing Company XYZ", alter preconfigured defaults if needed, OK, and the next day a courier brings me my print job, all payments and address information transfer being handled in the background.

Let me order pizza by RPC (we could streamline ordering in our local Hackerspace by voting on toppings on IRC and using a bot to make the order ;)). Let me do shopping by a POST request.

The end result would be that the use of aby service that doesn't require your physical presence could be streamlined, a lot of time wasted on boring paper/legwork could be optimized away, and the system would work smoothly in the background as long as you top up your credit card regularly.

Re: Why Amazon Has No Profits and Why It Works

#154

Post by jeremyjh »

hnnewguy wrote: post #128
AndrewKemendo wrote: post #102

Earlier quoted context omitted.

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 e…

Suppose Amazon were taking all of the profit they pile into capex today, and put cash in the bank. Do you think your share of a growing pile of cash is worthless?

Re: Why Amazon Has No Profits and Why It Works

#155

Post by tlb »

smacktoward wrote: post #109
philwelch wrote: post #88

Earlier quoted context omitted.

In the 1990's, undoubtedly Gates.

Yeah, that was my thought too. > John offered three choices to rival refiners, cash, Standard Oil stock, or to get crushed ... is also a pretty good description of how Microsoft approached anyone they considered competition in the '80s and '90s: you either licensed your software to them ("cash"), sold your company to them ("stock"), or got destroyed by them. Gates' charitable efforts have earned him a warmer and fuzz…

It's worth reading Ron Chernow's biography of the Rockefellers.

Rockefeller had a strong Christian Soldier belief system, in which he was righteous and most other oilmen were sinners. (The 19th century oil business attracted a lot of hard-drinking, gambling, womanizing types.) He did good works with his money, while many of his competitors would have spent it on vice. Therefore, he was furthering God's plan for the righteous to inherit the earth by beating them in business.

It's a worldview difficult for moderns to relate to, but I think it was authentic for him.

Re: Why Amazon Has No Profits and Why It Works

#156

Post by sliverstorm »

ghaff wrote: post #142
sliverstorm wrote: post #85

Earlier quoted context omitted.

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

As others have written downthread, it's probably at least worth the pro-rated value of their assets at fair market value. That said, the classic theoretical valuation of a stock is the net present value of their dividends--i.e. the cash you receive from the company. Obviously this doesn't work very well as a stock pricing proxy for most companies. But if you factor in things like estimated acquisition price, you get…

Right, I mean it makes perfect sense if the dividends have some expected future value. But my parent was saying they don't need to make a profit. If they never turn a profit, the expected future value of the dividends is $0.

Re: Why Amazon Has No Profits and Why It Works

#157

Post by pbreit »

mikeg8 wrote: post #150
pmarca wrote: post #132

Earlier quoted context omitted.

Bingo.

I've never really thought of it like this – interesting. Are there any other examples of large/popular companies on par with Amazon"re-invest" mentality? I can't think of any off the top of my head but would be interested to look at others. Thanks

Salesforce comes to mind.

Re: Why Amazon Has No Profits and Why It Works

#158

Post by apalmer »

burgers wrote: post #134
apalmer wrote: post #104

Earlier quoted context omitted.

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 th…

I am just pointing out that as a stock holder if the only value of buying AMAZON stock is that you expect that someone else down the line is going to pay you more to buy it than you paid for it then thats similar to how a Ponzi scheme works.

I dont think Amazon is taking a bad approach but, realistically feel Amazon is not going to produce any other return for its investors for the next ten years until it completely dominates the world market. Couple this with the fact that Amazon is not guaranteed to ever actually completely dominate the world market... its just unusual for a company to never return a profit after 20 years of business and investors are still hungry for the stock.

Re: Why Amazon Has No Profits and Why It Works

#159

Post by zanny »

hga wrote: post #59
paulhauggis wrote: post #28

Earlier quoted context omitted.

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,…

I've been buying more stuff off ebay, mainly on the basis that the site is hugely biased towards the purchaser and not the seller. I've sold stuff as well, but I'm always afraid a purchaser could just say I sold them a fraudulent transaction, trash my rating, and Ebay takes the money back and I'll never get the product back.

Re: Why Amazon Has No Profits and Why It Works

#160

Post by seanmcdirmid »

jfoutz wrote: post #113
swalsh wrote: post #95

Earlier quoted context omitted.

"Interestingly enough, after reading that, I realized that Google doesn't stand a chance in hell of beating them at commerce." I used to work for a strapping start-up. Our competition had a lot more money, and people than us... but it didn't really matter because we were smarter in how we approached building the product. The future of eCommerce is going to be very heavily dependent on AI & robots. Product Suggestions…

Both Amazon and Google are very smart. Amazon seems to have a greedy algorithm with regard to new tech. I mean, Amazon seems to keep automating the least efficient thing - http://www.kivasystems.com/ for example. Google is much more forward looking, looking for big changes, like self driving cars. I can see google taking over more markets like they did with search. "more wood behind fewer arrows" was the saying. Amaz…

Agreed. Google is more likely to be the GE of the future: a lot of great technology, hands in many industries. Amazon, in contrast, is like a cross between Wal-Mart and the old AT&T (there is no good previous analogy for what they are doing, but many are doing the same...see Taobao).
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