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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

#161

Post by bronbron »

chops wrote: post #42
exelius wrote: post #18

Earlier quoted context omitted.

In retail, yes. Retail margins are usually less than 3%; so $20m/yr in revenue would give you less than $600k/yr in profit. Not bad money by any means; but certainly not enough to need a bunch of shareholders. Contrast this with the fact that an average Walmart does over $100 million a year in revenue (though Walmart's margins are closer to 1%), and it's actually not that huge.

At first, I thought "you meant $100 billion" not "million", until, on a 2nd or 3rd rereading, I realized you were referring to an average single Walmart store does over $100m in revenue. So I thought I'd throw this comment in here in case others were misreading it as I did.

Totally did the same thing. Thanks for the explanation, really cleared it up.

Re: Why Amazon Has No Profits and Why It Works

#162

Post by jeffreyrogers »

The real question is this: does the dollar of earnings Amazon retains generate more than a dollar of value for owners of the company (i.e. shareholders)?

I don't know either way, and I don't want this post to seem like a criticism of Amazon. I know some people who work in upper level management there and they all speak very highly of the way the company is run (very meritocratic). But reinvesting earnings is only a good strategy if those earnings are put to good use, otherwise they should be paid out as a dividend.

Anyways, just something to think about whenever the topic of Amazon's profits/earnings comes up.

Re: Why Amazon Has No Profits and Why It Works

#163

Post by QuantumChaos »

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…

You've contradicted yourself there. If Amazon's stock price is doing well, this is evidence that they are creating value for shareholders.

Re: Why Amazon Has No Profits and Why It Works

#164

Post by jeffreyrogers »

shill wrote: post #29
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.

My AMZN shares are in a Roth IRA. I can wait.

Amazon stock trades at a P/E of 910. S&P 500 average is currently around 19-20. Do you really expect Amazon to continue to grow at such a rate that its current P/E is justified?

Re: Why Amazon Has No Profits and Why It Works

#165

Post by QuantumChaos »

At the risk of being boring, Amazon's "no profit" model works because profit is an accounting measure, not an economic measure.

Amazon is increasing in value, but because they are investing in themselves, on paper (i.e. according to accounting measures) they are not profitable.

All companies have a "book to market" ratio that indicates they are worth more as a company than accounting measures would suggest.

Re: Why Amazon Has No Profits and Why It Works

#166

Post by brisance »

jeremyjh wrote: post #154
hnnewguy wrote: post #128

Earlier quoted context omitted.

> 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?

Apparently that's how the stock market values Apple's cash position.

Re: Why Amazon Has No Profits and Why It Works

#167

Post by caycep »

vinceguidry wrote: post #75
chriskelley wrote: post #74

Earlier quoted context omitted.

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

http://www.amazon.com/Titan-The-Life-John-Rockefeller/dp/140...

Thanks. The Prize by Daniel Yergin isn't bad either.

Re: Why Amazon Has No Profits and Why It Works

#168

Post by TTPrograms »

larrys wrote: post #136
marincounty wrote: post #127

Earlier quoted context omitted.

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 previous…

https://en.wikipedia.org/wiki/Argument_from_authority

Re: Why Amazon Has No Profits and Why It Works

#169

Post by psychometry »

samstave wrote: post #143
vinceguidry wrote: post #94

Earlier quoted context omitted.

Rockefeller was a human hurricane, a truly unique individual. He practically invented the modern corporation. He was also a product of his time. I don't think a comparison to any of today's tech giants could be anything more than laughably superficial. There are plenty of ruthless people in business even today. But Rockefeller was driven by the belief that cooperation in business, rather than competition, was the way…

I would equate only Musk to him with respect to creating lasting change.

What lasting change has Musk effected? The potential is certainly there, but the average person's life isn't much different than it would be had Musk never existed.

Re: Why Amazon Has No Profits and Why It Works

#170

Post by AndrewKemendo »

QuantumChaos wrote: post #163
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…

You've contradicted yourself there. If Amazon's stock price is doing well, this is evidence that they are creating value for shareholders.

That was exactly my point.

The latter portion of the post was not specifically applicable to Amazon, but was refuting the author's point of view.

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