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When a company issues shares to the market, investors who buy those shares are investing in the company, and the company can take that investor money and spend

by shubb 5y ago

When a company issues shares to the market, investors who buy those shares are investing in the company, and the company can take that investor money and spend it on equipment, wages, or I guess subsidising goods to undercut the competition. Many companies buy back shares, returning money to investors and increasing the price of their current shares. There are arguments about whether this is a good thing, but the fact remains that Walmart and Microsoft (comparable companies) have bought half and 1/3rd of their shares - returning large amounts of money to investors. This is in contrast to Amazon. Amazon have constantly issued new shares. This isn't a company that took some initial VC money and turned it into profits. As a company that has not been making a profit and has constantly been issuing new shares, Amazon has factually been running on investor cash for 20 years. I'm not saying the investors don't get a good deal. Investors know they are paying for Amazon to build market share by undercutting. I'm just saying what happened. Here is the graph: Amazon borrowing from the market to subsidise its loss making business in order to build marketshare: https://www.macrotrends.net/stocks/charts/AMZN/amazon/shares-outstanding https://www.macrotrends.net/stocks/charts/AMZN/amazon/shares... Walmart not borrowing from the market and making a profit, which it returns to investors as a share buy back rather than a dividend: https://www.macrotrends.net/stocks/charts/wmt/walmart/shares-outstanding https://www.macrotrends.net/stocks/charts/wmt/walmart/shares... Also do note that the number of shares issued by amazon per year has remained fairly constant but the value of those shares has increased, so the amount Amazon 'borrows' has increased each year. You raise the question, long term, will it work? It is too early to say right? Amazon dominate cloud and are making a profit now in that area, but other companies have been able to cut in on 'their' market. What will happen to elsewhere if amazon stop subsidising and a new investor subsidised company comes for their cheese? Amazon shares are very high on the the expectation that market share has been permanently bought. How deep is the moat?

lotsofpulp 5y ago
> This isn't a company that took some initial VC money and turned it into profits. If you do not think the $8M VC funding AMZN took in 1995 turned into profit, you are using a different definition of profit than most people. > As a company that has not been making a profit and has constantly been issuing new shares, Amazon has factually been running on investor cash for 20 years. Your macro trends link shows profit margins of 4% prior to 2010, and 4% after 2018. Walmart shows 3% or less on many years. I do not even know what we are talking about anymore, but the numbers show that Amazon is investing into its business. I do not see proof they are undercutting competitors (Walmart/Target/etc). In fact, Amazon’s retail prices have been consistently higher than their competitors, precisely because retail is a low margin game with little upside. The big money is in digital goods, which can scale easily with extremely high profit margins, such as AWS and Amazon Prime Video/Music. I would bet Amazon’s retail play is now just a way to get the retail public to sign up for the recurring monthly revenue from video services, and to take the 15% profits off the top from reseller’s sales for being a platform. Amazon ideally does not want to be an actual retailer, that is a 3% profit margin business, as Walmart’s data shows. They want to be a platform, that is a 15%+ profit margin business. And it is reflected on their website by them not allowing you to restrict searches for items shipped and sold by Amazon, and not competing on price (in my experience). Why would they want that inventory risk and stuff that comes with selling physical goods.
- shubb 5y ago
  First of all, you probably know a lot more than me about the company, so take this with a pinch of salt. You said that you are not sure what we are discussing. We may be discussing different things. I'll try to be specific about what I am trying to say. The assertions that I read into your post which I was replying to were: 1. Walmart is making a 3% profit and 2. Amazon has not taken investor money since 1996, so everything since then must have come from the consumer In response: 1. I showed that Walmart has bought back half of its shares during that time, so it must have been making a much larger profit than was return in dividends. 2. I showed that Amazon has taken billions in investor money since 1996, and given that it has not been returning significant dividends or accumulating cash, it is true to say that Amazons business since 1996 has been dependent on constant investment. A post up thread by Roixi questioned whether, in the long term, a business model that depended on continuing incoming investor capital could be flipped to a conventional profit making company - they claimed uber had failed to flip. I was noting that Amazon could not be cited as evidence of a flip that work yet, because the baby milk of [ a huge and constant supply of investor money] was still flowing. It may be that this business model will work, but amazon doesn't prove it... yet
  - lotsofpulp 5y ago
    >The assertions that I read into your post which I was replying to were: 1. Walmart is making a 3% profit and 2. Amazon has not taken investor money since 1996, so everything since then must have come from the consumer No, my intention was to refute Retric's claims that Amazon dumped product at a loss to "burn everyone else out of the market" with VC money, which is obviously disproven by the fact that many competitors exist, and the fact that Amazon took extremely little VC money, and did so 26 years ago. And also to refute Retric's claims that Amazon's retail operations are "making money hand over fist", which is obviously disproven by the fact that no retail business makes money hand over fist. So unless Amazon was selling goods at a much higher price (which it does not), or it discovered a secret technology that let them vastly reduce their COGS (they have not), then it has similarly low margins. >It may be that this business model will work, but amazon doesn't prove it... yet I do not understand how it has not been proven yet? They developed AWS, which ushered in a new paradigm of computing. They are profiting, as shown in their 10-K reports, and have for years. And investors are continuing to bet on Amazon. Investors are not willing to pay as much for Walmart shares because investors do not believe Walmart's team will be able to execute something like Amazon's team. Walmart buying back its shares rather than investing in the business means they do not think they can do anything better with the money. Amazon bet that they could, by building AWS and more logistics infrastructure and a media business, and they did accomplish that, and now they have a great new revenue stream. This is seen in Amazon's market cap of $1.8T versus Walmart's market cap of $400B. Amazon did something more valuable than Walmart, and hence Amazon's owners were rewarded far more.

by shubb 5y ago

lotsofpulp 5y ago

> This isn't a company that took some initial VC money and turned it into profits. If you do not think the $8M VC funding AMZN took in 1995 turned into profit, you are using a different definition of profit than most people. > As a company that has not been making a profit and has constantly been issuing new shares, Amazon has factually been running on investor cash for 20 years. Your macro trends link shows profit margins of 4% prior to 2010, and 4% after 2018. Walmart shows 3% or less on many years. I do not even know what we are talking about anymore, but the numbers show that Amazon is investing into its business. I do not see proof they are undercutting competitors (Walmart/Target/etc). In fact, Amazon’s retail prices have been consistently higher than their competitors, precisely because retail is a low margin game with little upside. The big money is in digital goods, which can scale easily with extremely high profit margins, such as AWS and Amazon Prime Video/Music. I would bet Amazon’s retail play is now just a way to get the retail public to sign up for the recurring monthly revenue from video services, and to take the 15% profits off the top from reseller’s sales for being a platform. Amazon ideally does not want to be an actual retailer, that is a 3% profit margin business, as Walmart’s data shows. They want to be a platform, that is a 15%+ profit margin business. And it is reflected on their website by them not allowing you to restrict searches for items shipped and sold by Amazon, and not competing on price (in my experience). Why would they want that inventory risk and stuff that comes with selling physical goods.

shubb 5y ago
First of all, you probably know a lot more than me about the company, so take this with a pinch of salt. You said that you are not sure what we are discussing. We may be discussing different things. I'll try to be specific about what I am trying to say. The assertions that I read into your post which I was replying to were: 1. Walmart is making a 3% profit and 2. Amazon has not taken investor money since 1996, so everything since then must have come from the consumer In response: 1. I showed that Walmart has bought back half of its shares during that time, so it must have been making a much larger profit than was return in dividends. 2. I showed that Amazon has taken billions in investor money since 1996, and given that it has not been returning significant dividends or accumulating cash, it is true to say that Amazons business since 1996 has been dependent on constant investment. A post up thread by Roixi questioned whether, in the long term, a business model that depended on continuing incoming investor capital could be flipped to a conventional profit making company - they claimed uber had failed to flip. I was noting that Amazon could not be cited as evidence of a flip that work yet, because the baby milk of [ a huge and constant supply of investor money] was still flowing. It may be that this business model will work, but amazon doesn't prove it... yet
- lotsofpulp 5y ago
  >The assertions that I read into your post which I was replying to were: 1. Walmart is making a 3% profit and 2. Amazon has not taken investor money since 1996, so everything since then must have come from the consumer No, my intention was to refute Retric's claims that Amazon dumped product at a loss to "burn everyone else out of the market" with VC money, which is obviously disproven by the fact that many competitors exist, and the fact that Amazon took extremely little VC money, and did so 26 years ago. And also to refute Retric's claims that Amazon's retail operations are "making money hand over fist", which is obviously disproven by the fact that no retail business makes money hand over fist. So unless Amazon was selling goods at a much higher price (which it does not), or it discovered a secret technology that let them vastly reduce their COGS (they have not), then it has similarly low margins. >It may be that this business model will work, but amazon doesn't prove it... yet I do not understand how it has not been proven yet? They developed AWS, which ushered in a new paradigm of computing. They are profiting, as shown in their 10-K reports, and have for years. And investors are continuing to bet on Amazon. Investors are not willing to pay as much for Walmart shares because investors do not believe Walmart's team will be able to execute something like Amazon's team. Walmart buying back its shares rather than investing in the business means they do not think they can do anything better with the money. Amazon bet that they could, by building AWS and more logistics infrastructure and a media business, and they did accomplish that, and now they have a great new revenue stream. This is seen in Amazon's market cap of $1.8T versus Walmart's market cap of $400B. Amazon did something more valuable than Walmart, and hence Amazon's owners were rewarded far more.