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Amazon and the "profitless business model" fallacy

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Re: Amazon and the "profitless business model" fallacy

#131

Post by mistermann »

asmithmd1 wrote: post #107
mistermann wrote: post #93

Earlier quoted context omitted.

> 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.

Yes, WorldCom leaps to mind http://www.accounting-degree.org/scandals/ They misstated costs as investments and were able to show big profits - for a while.

While Worldcom is one incident where one(?) person was punished, it is from 2002, and from that page, it was following that incident that they enacted SOX, which afaik hasn't been used since. Or if it has, the incidents have been few and far between. I will continue to believe the system is rigged.

Re: Amazon and the "profitless business model" fallacy

#132

Post by c2 »

amitagrawal wrote: post #102
pmarca wrote: post #55

Earlier quoted context omitted.

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…

"Management teams of well-run companies spend very little time thinking about the formal financial statements." 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.

Sure, it's something the CFO thinks about, but it isn't really something that plays a factor into decisions about how to run the business for other C-level executives.

Re: Amazon and the "profitless business model" fallacy

#133

Post by icoloma »

darkarmani wrote: post #124
gjm11 wrote: post #68

Earlier quoted context omitted.

I'm still trying to work out whether (1) ballard 's remarkable cascade of mixed metaphors was itself a joke, or (2) eru 's comment was poking fun at it, or (3) both comments were intended entirely straight and it's just coincidence that the density of metaphor mixture is so high. Both comments make perfectly good sense taken "straight". I'm leaning towards #3, with apologies to ballard and/or eru if I missed their jo…

My father-in-law who himself was a director in a large international company told me about a game they used to play in meetings: bullshit bingo. You have to make up your cards ahead of time and then mark off the squares as you hear buzzwords.

That was an actual game at some MIT presentations. Eventually the speaker noticed.

Re: Amazon and the "profitless business model" fallacy

#134

Post by cperciva »

abalashov wrote: post #121
cperciva wrote: post #52

Earlier quoted context omitted.

If they never make a profit, how do they obtain the cash to spend on buying back shares?

Well, it's possible to have free cash without being profitable on paper. For instance, remember that depreciation is a major expense for capitalised assets (such as fulfillment centres, data centres, computer equipment, real estate, etc.) but isn't actually a hard cash expense, just a formal expense. The hard cash expense came at the time that the investment was made, i.e. when the data centre or what have you was ac…

Yes, but in the long run if you're depreciating assets and don't have capital costs to buy new assets, you end up running out of assets.

Re: Amazon and the "profitless business model" fallacy

#135

Post by Mikeb85 »

cperciva wrote: post #52
Mikeb85 wrote: post #43

Earlier quoted context omitted.

Not if Amazon decides to use some of it's free cash to buy back shares... Share buybacks and dividends are the end game for all public companies. Profits don't mean anything if money isn't being returned to shareholders. Amazon's generous valuation means that long-term investors think they'll continue to grow, and someday they'll return money to shareholders...

If they never make a profit, how do they obtain the cash to spend on buying back shares?

Their businesses are profitable, they just aren't booking profits. Odds are eventually they'll simply use free cash to buy back shares instead of reinvesting it. Which is why Amazon attracts quite a few very sophisticated long-term investors, and why they command a relatively high valuation.

Re: Amazon and the "profitless business model" fallacy

#136

Post by rrp »

KaoruAoiShiho wrote: post #46

Amazon only has around 10 more years before 3d printing starts to kill retail. Beware.

Bezos is an investor in Makerbot. (http://www.crunchbase.com/company/makerbot) I'm sure he's well aware of the trends in 3D printing and will position Amazon in the market appropriately.

Re: Amazon and the "profitless business model" fallacy

#137

Post by tsotha »

indymike wrote: post #79
tsotha wrote: post #39

Earlier quoted context omitted.

It would certainly be terrible for the shareholders. The whole point of investing in a company is to share in the profit.

Being a shareholder, you have a share in the ownership of the company. You make money when the value of the company increases. This is especially true with Amazon, which does not pay dividends (a share of profits to investors).

That's true. However, the value of the company will only increase if it develops profitable business units or it accumulates salable assets. In both cases this represents delayed profit, not nonexistent profit.

Re: Amazon and the "profitless business model" fallacy

#138

Post by fspeech »

epa wrote: post #130
fspeech wrote: post #123

Earlier quoted context omitted.

The fcf for retailers can simply come from paying suppliers later than getting paid by customers. While a cheap source of capital (even this is doubtful), not exactly a winning strategy in the long run. The fcf will stop once revenue growth slows. As capital it is only cheap in the sense that you don't have to constantly raise equity for growth. Without earnings your equity base can't grow w/o getting more from share…

Only ignorant investors can get fooled by large account payables. It's not a source of capital..

It is if it is stable enough (that is the negative working capital). In other settings (such as insurance) it is also known as float. Negative working capital is great if you can get it and keep it. The problem with the associated fcf is that the fcf is the derivative, literally. So if the working capital stops going more negative the associated fcf goes to zero.

Re: Amazon and the "profitless business model" fallacy

#139

Post by snowwrestler »

coldcode wrote: post #122
snowwrestler wrote: post #113

Earlier quoted context omitted.

Amazon is Jeff Bezos's company and everyone knows it. He maintains detailed oversight of all the lines of business.

Until he gets hit by a bus or some cancer cells. Then what?

Then Amazon will be a very different company under someone else's leadership.

Re: Amazon and the "profitless business model" fallacy

#140

Post by daemin »

gfodor wrote: post #117
clarky07 wrote: post #116

Earlier quoted context omitted.

That's fine, but apple makes more profit every quarter than amazon has ever made I think. They have made several hundred billion dollars over the last few years. Who knows if amazon ever gets to flip the switch. Maybe they do, but even then apple will have a several hundred billion dollar head start. Perhaps both strategies will end up working, but you can't say apples strategy is a failure. It is clearly not, even i…

Don't forget, if the market crashes and AMZN stock gets a 50% haircut, that big pile of cash AAPL has been shoveling their profits onto on can get mighty scary to everyone very quickly.

The problem with the cash pile, and also with other companies' large cash piles, is that a lot of the cash, maybe even the majority, is held overseas. Hence there will be an almighty tax bill if it is brought back to the USA.
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