101–110 of 141 posts
Amazon only has around 10 more years before 3d printing starts to kill retail. Beware.
Never. Ever.
There are some issues with this explanation. The main issue is that the rules of accounting have a very good provision to take into account investing into the future. It is called capitalization. Thus, if a company spends money to build or acquire a new asset, it is called capital spending and it is not subtracted from the profits. Thus, for example, if a company had a million dollars of profit and decided to spend t…
The accounting rules (GAAP) have only a loose correlation to how most modern large companies actually operate the levers of their businesses. Management teams of well-run companies spend very little time thinking about the formal financial statements. Accounting bears the same relationship to actually running a business that the Efficient Market Hypothesis does to actually effectively investing -- which is to say, al…
Not true at all. Well run companies do spend a lot of time in preparing their financial statements. First, it is required by law, see - Dodd-Frank, Sarbanes-Oxley, etc.
Second, it can get well-run companies with good intentions into a lot of trouble with the SEC and investor lobbying groups.
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Can you explain how capital expenditures do not affect profits? Doesn't capitalization just mean that expenses are applied over time? They don't disappear, correct?
Capital expenses do not affect profits for the reporting period they happen in. It is true that after that reporting period there is a depreciation cost applied to take account of loss of value of an asset. For example, if a company buys a distribution center, it will not expense the cost of the distribution center as an expense. But as time goes on it will expense a depreciation expense that accounts for the loss of…
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281M of stock-based compensation ... ended the quarter with about $100 million more cash than they started with. This looks like a loss to me. They could have sold $281M of stock and gotten $281M in cash; instead they ended up $181M short of that.
In general when you're a CEO or board member you'll make more money by granting yourself $x million in stock than you'll make by paying a dividend of $x million which has to be shared among all investors.
There are some issues with this explanation. The main issue is that the rules of accounting have a very good provision to take into account investing into the future. It is called capitalization. Thus, if a company spends money to build or acquire a new asset, it is called capital spending and it is not subtracted from the profits. Thus, for example, if a company had a million dollars of profit and decided to spend t…
Can you explain how capital expenditures do not affect profits? Doesn't capitalization just mean that expenses are applied over time? They don't disappear, correct?
But, unlike cash, a building doesn't retain its (dollar) value forever, it must be written off. I'm not sure how buildings are written off since they have a rather long "shelf" life, but laptops are generally written off over three year. So if you buy a $1500 laptop with cash in year 0, your profits in year zero are unaffected, but you must book a depreciation (a reduction in the value of your assets) worth $500 in years 1, 2 and 3. Hopefully you will, as with your warehouse, use your new asset to book profits in each of these years in excess of your write-offs.
If you're not familiar with the "long-term" thinking of Bezos, this anecdote from Brad Stone's recent book on Amazon is particularly interesting: Bezos wanted AWS to be a utility with discount rates, even if that meant losing money in the short term. Willem van Biljon, who worked with Chris Pinkham on EC2 and stayed for a few months after Pinkham quit in 2006, proposed pricing EC2 instances at fifteen cents an hour,…
Other retailers & technology companies don't have that luxury. They can't lose money at the cost of margin contraction or market share expansion. Heck, they can't lose money at all the way Amazon has been doing since its inception!
It's high time Bezos repeated the "Steve Jobs's mistake". Not that Amazon shareholders want them to.
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While I agree that GAAP only vaguely represents reality, Management teams of all well run companies /DO/ think about formal financial statements. These statements require thought or liability to potential jail time. In addition, the impact of these statements on financial markets (ie: stock price) is tremendous. Management damn well should be thinking about shareholder value.
> liability to potential jail time Are there any examples of this? It seems to me the SEC didn't make much use of all the archived emails (guaranteed to be in place due to SOX) during the 2008 banking crisis which makes me generally distrustful of these formal written rules.
http://www.accounting-degree.org/scandals/
They misstated costs as investments and were able to show big profits - for a while.
If sales ever plateau and investors force you to generate profits, the plane stalls and the whole thing spirals down, because it's the profit reinvestment which actually drives sales growth, and actual profits attract competitors who have been unable to pull off the profitless-hyper-growth trick. So far that hasn't happened.
Amazon's value is in the entire business and not the sum of its parts, which means that at some point, investors expect to own a profit making enterprise and not a bunch of warehouses. However, that won't happen until sales plateau or Bezos dies. Ironically, at that point the business loses a lot of value, both because growth has stopped and because competitors are about to enter the space, emboldened by Amazon's newly discovered profits. The whole thing is a bit of a sham. Any growth industry (Internet retail) can support only one "no profit rocket," and eventually it comes back to earth when that industry matures and ends the hypergrowth phase.
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i'm a big fan of Bezos, honestly, but to say that pricing your products in such a way as to make >$100 billion in cash is a "mistake"... that's just crazy talk.
Meanwhile, the iPhone has slowly but steadily been losing mindshare to its amazing competition.
And if only Apple had the sense not to make any money off the iPhone, they'd hold all the "mindshare"?
As an investor in both companies (though I recently sold my AMZN position), I'm quite pleased with Apple's decision to value revenue over "mindshare." The iPhone business was and is bigger in itself than many entire Fortune 500 companies.
If you're not familiar with the "long-term" thinking of Bezos, this anecdote from Brad Stone's recent book on Amazon is particularly interesting: Bezos wanted AWS to be a utility with discount rates, even if that meant losing money in the short term. Willem van Biljon, who worked with Chris Pinkham on EC2 and stayed for a few months after Pinkham quit in 2006, proposed pricing EC2 instances at fifteen cents an hour,…