4 ms·
The one figure that this didn't quibble with is also wrong. Net profit definitely adds to shareholder value. But suppose that I make $30 billion, reinvest $20
by btilly 6y ago
The one figure that this didn't quibble with is also wrong.
Net profit definitely adds to shareholder value. But suppose that I make $30 billion, reinvest $20 billion, and create something that is worth $90 billion. My net profit is now $10 billion. But I actually added $100 billion in shareholder value!
Jeff Bezos knows this, and knows this well. For many years Amazon ran at a net profit around $0 because it was reinvesting all of its profits in new businesses. So it was adding shareholder value like crazy! (And people who didn't understand this were walking around saying, "Why is Amazon worth so much? They don't even make a profit!")
Of course doing this calculation correctly includes estimating the present value of the thing I created. And that is notoriously hard. So the proxy used in the real world is market cap. However market cap is volatile and subject to change based on the emotions of speculators. Certainly Amazon's actions last year are not the whole story for why they added $600 billion in market cap!
So while net profit is the wrong measure, there is no measure that can be used which really is right for "added to shareholder value".
- hinkley 6y agoThe CEO class is still mostly old enough to remember corporate raiders, and of course we have the modern equivalent where groups buy companies, saddle them with debt, and exfiltrate the money long before the company goes bankrupt. Having enough liquid assets to prevent a hostile takeover is not the most profitable thing short-term but it does protect you. Amazon is so big it doesn't have that problem. It's simply too big for anyone to get their teeth around. I think this is another case of "you are not a FAANG, if you act like one it won't turn out the same for you."
- adventured 6y agoThe ownership position that Bezos had through most of its history was enough to make a hostile acquisition nearly impossible. That's how they survived the bad years post dotcom bubble without being acquired for relatively cheap. It's very hard to pull off a successful hostile takeover if you have prominent insiders with ~25-35% of the company and they don't want to sell. Certainly after they began reporting AWS results and the stock skyrocketed that was the end of any serious hostile acquisition risk (in the few years prior to the AWS numbers they were a $100-$175 billion market cap company, which eg Walmart could have afforded had regulators allowed it and insiders not made it nearly impossible).
- jdmoreira 6y agoIt was also compounding the money that would otherwise have to be paid in taxes if it were not reinvested. He is an excellent CEO!
- B1FF_PSUVM 6y agoWell, there's number of users and ARPU, or equivalently how much money flowed through ... I understand telecoms and others get warm fuzzies from that.
- HWR_14 6y agoThe people questioning why Amazon was worth so much, at least the ones I knew about, questioned the value of what Amazon was investing in and whether Amazon would be able to extract monopoly profits from eCommerce. Obviously, Amazon had some missteps (the Fire Phone was a huge sink of money), but their investments seem to have done well overall.