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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

#171

Post by nostrademons »

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

Berkshire Hathaway. Microsoft until c. 2006. Apple. Google. Most hedge funds. Standard Oil and U.S. Steel if you go back to the last century.

Basically, it's rational for a company CEO to invest all profits back into the business as long as he expects he can make a better return for them than the market can. Berkshire Hathaway's annual reports go into more detail in this. The trick is in recognizing the size of the market opportunity in front of you, so that you know when to switch from reinvesting profits to distributing them as dividends. Microsoft waited too long for this - they burned (and are still burning) billion on unprofitable business lines. Google has had debatable success - some of their new businesses are brilliant, some are huge flops.

Re: Why Amazon Has No Profits and Why It Works

#172

Post by mikeg8 »

nostrademons wrote: post #171
mikeg8 wrote: post #150

Earlier quoted context omitted.

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

Berkshire Hathaway. Microsoft until c. 2006. Apple. Google. Most hedge funds. Standard Oil and U.S. Steel if you go back to the last century. Basically, it's rational for a company CEO to invest all profits back into the business as long as he expects he can make a better return for them than the market can. Berkshire Hathaway's annual reports go into more detail in this. The trick is in recognizing the size of the m…

Thanks for your reply.

Apple, and even Google, don't seem nearly as similar to Amazon in the question I asked. While they both invest heavily in R&D and other capex's areas, they also store a lot more cash (at least apple) and seem to report a lot more of a "profit" than Amazon. Do they re-invest _all_ profits or just a portion like most companies?

People don't talk about Apple, Google, or Microsoft as companies that failed to become "profitable" in nearly the same way people talk about Amazon, at least from what I see. AMZN still seems like such an outlier...

Re: Why Amazon Has No Profits and Why It Works

#173

Post by QuantumChaos »

AndrewKemendo wrote: post #170
QuantumChaos wrote: post #163

Earlier quoted context omitted.

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.

oh ok, two separate issue then I guess.

Re: Why Amazon Has No Profits and Why It Works

#174

Post by gizmo686 »

apalmer wrote: post #158
burgers wrote: post #134

Earlier quoted context omitted.

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…

The big distinction is that Ponzi schemes have no end-game: they inevitably burst. Amazon has a well defined end-game (start to turn a profit), and there is good reason the believe that they will eventually do so. Assuming this eventuality remains reasonable, the stock will have some inherit value because someone will be willing to buy it today for the expected payout of dividends later.

Re: Why Amazon Has No Profits and Why It Works

#175

Post by derekp7 »

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.

Reminds me of a parable in I think an old Hardy Boys book. First, pound a bunch of nails in a board. Now remove the nails. Now remove the holes.

Re: Why Amazon Has No Profits and Why It Works

#176

Post by dragonwriter »

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?

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

Because stock is a claim against the assets in the event of dissolution, so it should be valuable as long as the company is expected to have a positive net worth.

Dividends are simply a mechanism allowing stockholders to realize value prior to dissolution. Of course, so is simply selling stock.

Further, if Amazon runs out of good opportunities to funnel operating returns into expansion, then it would make sense to start returning some via dividends, its just that its not there yet and that situation isn't even apparent on the horizon -- its not that they'll never pay dividends, its just that it doesn't seem to be the optimum strategy for the foreseeable future.

Re: Why Amazon Has No Profits and Why It Works

#177

Post by btgeekboy »

TeMPOraL wrote: post #153
pdpi wrote: post #35

Earlier quoted context omitted.

> 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 handle…

Your print shop dream is basically a reality already - you can install the Fedex Office Printer, click print, and it prints out there. I believe if you get enough printed, they will deliver as well.

Re: Why Amazon Has No Profits and Why It Works

#178

Post by [deleted] »

TeMPOraL wrote: post #153
pdpi wrote: post #35

Earlier quoted context omitted.

> 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 handle…

[deleted]

Re: Why Amazon Has No Profits and Why It Works

#179

Post by dragonwriter »

TeMPOraL wrote: post #153
pdpi wrote: post #35

Earlier quoted context omitted.

> 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 handle…

> For instance, why can't I install a local print shop as a system printer?

I'm pretty sure that FedEx Office (formerly FedEx/Kinkos) has supported doing that for many years. I suspect they aren't alone.

Re: Why Amazon Has No Profits and Why It Works

#180

Post by nostrademons »

mikeg8 wrote: post #172
nostrademons wrote: post #171

Earlier quoted context omitted.

Berkshire Hathaway. Microsoft until c. 2006. Apple. Google. Most hedge funds. Standard Oil and U.S. Steel if you go back to the last century. Basically, it's rational for a company CEO to invest all profits back into the business as long as he expects he can make a better return for them than the market can. Berkshire Hathaway's annual reports go into more detail in this. The trick is in recognizing the size of the m…

Thanks for your reply. Apple, and even Google, don't seem nearly as similar to Amazon in the question I asked. While they both invest heavily in R&D and other capex's areas, they also store a lot more cash (at least apple) and seem to report a lot more of a "profit" than Amazon. Do they re-invest _all_ profits or just a portion like most companies? People don't talk about Apple, Google, or Microsoft as companies that…

They have different growth strategies because of their different core competencies, and those get accounted for differently under GAAP.

Google tries to accumulate cash so that when there's an opportunity - say, buying DoubleClick or YouTube or Motorola - they can pounce. Since Google is basically an IP company and tries to avoid having physical assets on the books, these are usually whole other companies, usually technology-related. These opportunities are unpredictable, so they bank the cash on the books, invest it in liquid instruments, and then spend it all at once.

Apple is a mature company now - it pays a dividend. But during their big growth years between the iPod & iMac and the iPad, they suspended the dividend, and ran very close to break even then too.

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