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Just to give some numbers to this, for anyone wondering: In 2012, Amazon made $631 million profit on over $48 billion revenue - meaning they converted a little

Just to give some numbers to this, for anyone wondering: In 2012, Amazon made $631 million profit on over $48 billion revenue - meaning they converted a little over 1% into profit. Meanwhile, almost every other comparable company had close to 20x that. Google made about $11 billion on $48 billion, and Apple made $41 billion on $156 billion. From a purely financial perspective, it really is insane.

logn 14y ago
1% margins are about normal for grocery stores... just to put this perspective in perspective :)
- anu_gupta 14y ago
  Amazon's Price/Earnings ratio is a quite staggering 3897. Wal-Mart's PE ratio is 14.38. Safeway's is 9.25, Apple's is 10.35.
  - treeface 14y ago
    Which tells you how meaningful the P/E ratio is when analyzed independently.
    - marvin 14y ago
      At some point it needs to come down though, one way or another. Not many are going to invest in a company which is guaranteed to have a P/E of > 200 indefinitely. This would mean a very low return on investment.
      - dhimes 14y ago
        From a practical point of view, who cares? Unless they are selling their stock to raise revenue it matters not (to them) if people are willing to "invest in" their company. Now their investors may care, and there may be board fights and so on, but if Bezos can control that then he has some leeway to build the company he wants. It's pretty impressive, really. And it's very intriguing what's going on in Cambridge (MA). A lot of hiring and work and what-not yet nobody seems to know what they are doing.
        Evbn 14y ago
        Investors can't care. If they cared, the stock price would drop and take P/E with it. It fixes itself
      - smackfu 14y ago
        The numbers were silly three months ago too, but AMZN was a much better investment since then than AAPL.
      - maerek 14y ago
        That's not the correct way to analyze P/E. Looking at that number in a vacuum is nigh on meaningless. P/E is best analyzed as a relative measure within a given market (in this case, online retailers w/ no brick and mortar presence). That said, there are exceptions to every rule. I'm not aware of any other companies that currently exhibit such a high P/E.
        marvin 14y ago
        What am I getting wrong, exactly? If a company is going to be a good long-term investment based on fundamentals, it needs to have a sensible P/E ratio. There are exceptions for companies that are growing or have a high probability of having higher earnings in the future. And of course a stock can make very big price movements with no change in fundamentals. But in a long perspective, there needs to be a small ratio between what you paid for the stock and what the company earns if it is going to be a good investment. FYI I am heavily invested in Tesla Motors, which currently has an undefined/negative P/E ratio.
        maerek 14y ago
        I don't disagree on seeking a sensible P/E ratio. I'm stating that in order to determine what qualifies as a sensible P/E ratio, you need to look at the industry/market the company operates in.
        _k 14y ago
        Amazon is a category killer just like Wal-Mart is and if their PE ratio is 14.38, then Amazon's P/E ratio should be in that area as well. In order to avoid being placed in that category, you have to do some disruptive things. It's similar to what most web based companies do, they try to shoot for the stars and keep that momentum going. I think that explains the high P/E.
  - logn 14y ago
    Yet their Enterprise Value/Revenue is ~2 and Google's is ~4 and Walmart's ~2/3 (.6). Ent Value is sort of the total investment/borrowing/valuation minus cash. So Amazon does more in sales vs their company's leverage compared to Google and worse compared to Walmart. EV/EBITDA is ~53 vs. Walmart's ~8 vs. Google's ~13. EBITDA is basically earnings but more complex ("earnings before interest, tax, depreciation, and amortization"). From what I've read there's concern Amazon is overvalued, but not what the Slate article portrays as them being some charity case, being invested in by people with ulterior motives to keep consumer prices low (I have no idea if that was even a sarcastic point or not. It's a terrible article).
    - kerno 14y ago
      It's pretty clearly a sarcastic point. The main thrust of the article is that Amazon appears to be given special treatment by Wall Street analysts and the investment community - everyone is banking on them being able to produce massive profits as a result of their relentless focus on growth at any cost. They can produce a loss for the quarter and have their share price rise significantly - other companies don't have the same luxury.
      - Evbn 14y ago
        Every growing company has the luxury.
        kerno 14y ago
        At a Price/Earnings of 3,160.71, that is a lot of luxury.
vinhboy 14y ago
From a glass half full perspective. You can argue that Amazon is keeping profits in check so they can continue to offer their customers the best prices and services. But that's if you live in a world where bears fart butterflies.
- mkuhn 14y ago
  Actually you could rather say that Amazon is reinvesting its profits to strengthen its position and reap the benefits in the future.
  - simonh 14y ago
    How far into the future? They've been saying that for 17 years.
    - muyuu 14y ago
      Except now they have profits and they had losses in the late 90s. They are still expanding to new countries. Last year, for instance, they opened amazon.es and amazon.com.br which are significant markets. I don't see what's the point in comparing revenue to profit ratios in wildly different sectors.
      - darrhiggs 14y ago
        Is amazon.es for latin america? AFAIK .es is España, and although it's ≈45MM, it's hardly a massive market WRT latin america.
        danieldisu 14y ago
        significant != massive
        lemma 14y ago
        No, it looks like it's targeted to Spain (which would make sense as far as logistics beacause they already have sites for France, Germany, Italy, and the UK).
batgaijin 14y ago
But isn't spending on infrastructure improvements cut into the reported profits? Considering how much Amazon is spending to consistently update their infrastructure, I wouldn't be surprised.
laluser 14y ago
You're missing the point here. Google's main business, selling ads, and Amazon's current main business, online retail, are two completely different markets. You're essentially comparing apples to oranges. The margins are lower in the space that Amazon is competing in, it doesn't make sense to compare two completely different companies.
- w0utert 14y ago
  Sure the margins are lower in online retail, but even then Amazon is performing abysmally, and the trend in almost all their numbers is downwards. The only reason they are still around in the first place, is sheer size. Smaller retailers would never survive on the profit margins Amazon is producing. The thing that sticks out most from their earnings release is that the trend is clearly downward. The profit margins and net cash flow are sinking, while operating costs, number of employees, etc are rising. Added to that, their market cap/stock valuation is truly insane, which IMO is a ticking time bomb. What this all means is that Amazon is going to get in a shitload of trouble somewhere down the road. Remember that they only made about $5 billion in profit over their complete lifetime, of which only about $1.5 billion is left after deducting losses, so in terms of cash Amazon is more or less on life support of their investors. All it takes is some relatively minor event (more focused competition, lower consumer spending, some kind of bad media attention) and their stock will tank, and the whole constellation could go down like a house of cards. No matter how much you like Amazon and its services, it's hardly an example of a solid business if you ask me.
  - Retric 14y ago
    What your missing is they don't pre pay for there inventory. So while revenue vs profit might make it seem like they would quickly get into trouble a 10% drop in retail sales with far less issues than a software company operating on 1% margins.
    - w0utert 14y ago
      They might not pre-pay for the inventory, but they still have fixed costs, and they are rising, they have over 50k employees now. They _need_ to sell at huge volumes with the profit margins they are taking, otherwise they will bleed money. Some day, the fairy tale of 3000+ P/E and years of making next to no profits or even losses will be over and the stock will tank. Amazon will have a huge problem attracting funding to cover their fixed costs, they will have to fire lots and lots of employees at the expense of service and marketshare, and basically show us what the .com bubble 2.0 looks like.
necubi 14y ago
You really can't compare profit margins between a retailer and a software company. Amazon books the full price of the products it sells as revenue, but must pay most of that to its suppliers, whereas the marginal cost of most of Google's products is very near 0.
- brisance 14y ago
  Fair enough, but even then, AMZN is doing worse than Wal-Mart.
  - suby 14y ago
    Walmart has to compete with whatever local stores are in your area. Amazon has to compete with every other website that sells things on the 'net. Plus I'm under the impression that Amazon is investing more into growth at the moment than Walmart is.
    - npsimons 14y ago
      Prime is really a killer feature. I'll find myself ordering things I never would have dreamed of buying online, or possibly at all (because I didn't know it existed). And this from someone who balked when Amazon first started selling things besides books!. Living in a small town might be a factor in this, however.
  - arethuza 14y ago
    I was surprised to read that Wal-Mart has had some fairly large failures in some markets - notably Germany where they gave up and lost £3 billion. Is there any country where Amazon has tried and failed to compete?
  - smackfu 14y ago
    If you look at 3Q numbers, AMZN had 27% revenue growth, while Walmart had 4%. That's a huge difference. (Walmart didn't announce 4Q numbers yet.)
sliverstorm 14y ago
Aside from the other things that have been pointed out, IMO Amazon is still trying to grow aggressively. Most "comparable" companies have settled in to a market and an operating model. Even Google simply seems to "explore" new territory, instead of pursuing it.
btilly 14y ago
it is only insane if you do not understand how Amazon makes money. If a retailer wants to double its revenue, there are two basic options. Double your margins. Or double your volume by cutting the time you hold inventory in half. Amazon has aggressively gone for the second approach, and is glad to cut its margin in half in return for tripling sales. Your "comparable companies" are not in the consumer retail business. And if they tried to maintain their margins while competing head on with brick and mortar commodity retail stores, they'd go out of business.
- martinced 14y ago
  "If a retailer wants to double its revenue, there are two basic options. Double your margins. Or double your volume by cutting the time you hold inventory in half." So there's an unlimited amount of buyers willing to buy and every time you cut the time you hold the inventory in half people shall buy twice as much?
  - suby 14y ago
    I think they cut the time inventory is held in half by charging less and not making as much per sale, but making it up by moving more inventory.
  - btilly 14y ago
    If you take shipments in fixed sized lots, every time you double your sales rate, you've cut how long you have to hold each item in half. Furthermore it gets better. Frequently if you have good credit, you can take a shipment, sell it, and then pay later. This gives you float that you can use for things like paying the overhead of keeping unpopular items in stock. (Remember, Amazon makes substantial money both from having things that are hard to find elsewhere, and by selling commodity items in bulk.)
- ndonnellan 14y ago
  What happens when states more rigorously enforce sales tax collection? Margin-be-gone?
mcherm 14y ago
I just want to point out that it's not 1% of ten million dollars, it's not 1% of a Billion dollars, it's 1% of FIFTY BILLION DOLLARS! Amazon is investing in growth right now. That's why their profits are so low. Normally, one might think that a company of Amazon's age and size ought to be through the growth stage by now, and in fact it is TRUE: Amazon has finished dominating the book industry, and really has no more room to grow. Except that they found new markets and moved beyond books. Now they are a universal retailer of anything that can be sold on the internet. But that market (although not fully saturated yet) still isn't big enough for them, so they've also moved into making tablets for the masses. And into running server farms for the entire world. As long as they keep knocking over new markets at this rate, they don't need to show much profit. [DISCLOSURE: I do not own Amazon stock, primarily because I think it is overpriced. So I suppose I don't completely disagree with the parent post.]
cube13 14y ago
Just FYI, the $631 million number is for 2011, not 2012. http://finance.yahoo.com/q/is?s=AMZN&annual http://finance.yahoo.com/q/is?s=AMZN&annual 2012 appears that it's going to be a net loss, because of their horrible Q3 numbers. http://finance.yahoo.com/q/is?s=AMZN http://finance.yahoo.com/q/is?s=AMZN If I were an investor in Amazon, I would definitely be worried at this point. Even though revenue is up sharply, Amazon doesn't appear to be making a consistent profit at all-their net income was down 50% from 2010 in 2011, even though they had a ~33% increase in revenue.
- _k 14y ago
  If I'm not mistaken, they do have 5 billion in cash and cash equivalents. ( I don't know where that came from, equity or net income in the previous years ? ) So they can keep this going for 18 more years. And then they can start selling their offices.
- deleted 14y ago
  [deleted]

logn 14y ago

1% margins are about normal for grocery stores... just to put this perspective in perspective :)

anu_gupta 14y ago
Amazon's Price/Earnings ratio is a quite staggering 3897. Wal-Mart's PE ratio is 14.38. Safeway's is 9.25, Apple's is 10.35.
- treeface 14y ago
  Which tells you how meaningful the P/E ratio is when analyzed independently.
  - marvin 14y ago
    At some point it needs to come down though, one way or another. Not many are going to invest in a company which is guaranteed to have a P/E of > 200 indefinitely. This would mean a very low return on investment.
    - dhimes 14y ago
      From a practical point of view, who cares? Unless they are selling their stock to raise revenue it matters not (to them) if people are willing to "invest in" their company. Now their investors may care, and there may be board fights and so on, but if Bezos can control that then he has some leeway to build the company he wants. It's pretty impressive, really. And it's very intriguing what's going on in Cambridge (MA). A lot of hiring and work and what-not yet nobody seems to know what they are doing.
      - Evbn 14y ago
        Investors can't care. If they cared, the stock price would drop and take P/E with it. It fixes itself
    - smackfu 14y ago
      The numbers were silly three months ago too, but AMZN was a much better investment since then than AAPL.
    - maerek 14y ago
      That's not the correct way to analyze P/E. Looking at that number in a vacuum is nigh on meaningless. P/E is best analyzed as a relative measure within a given market (in this case, online retailers w/ no brick and mortar presence). That said, there are exceptions to every rule. I'm not aware of any other companies that currently exhibit such a high P/E.
      - marvin 14y ago
        What am I getting wrong, exactly? If a company is going to be a good long-term investment based on fundamentals, it needs to have a sensible P/E ratio. There are exceptions for companies that are growing or have a high probability of having higher earnings in the future. And of course a stock can make very big price movements with no change in fundamentals. But in a long perspective, there needs to be a small ratio between what you paid for the stock and what the company earns if it is going to be a good investment. FYI I am heavily invested in Tesla Motors, which currently has an undefined/negative P/E ratio.
        maerek 14y ago
        I don't disagree on seeking a sensible P/E ratio. I'm stating that in order to determine what qualifies as a sensible P/E ratio, you need to look at the industry/market the company operates in.
      - _k 14y ago
        Amazon is a category killer just like Wal-Mart is and if their PE ratio is 14.38, then Amazon's P/E ratio should be in that area as well. In order to avoid being placed in that category, you have to do some disruptive things. It's similar to what most web based companies do, they try to shoot for the stars and keep that momentum going. I think that explains the high P/E.
- logn 14y ago
  Yet their Enterprise Value/Revenue is ~2 and Google's is ~4 and Walmart's ~2/3 (.6). Ent Value is sort of the total investment/borrowing/valuation minus cash. So Amazon does more in sales vs their company's leverage compared to Google and worse compared to Walmart. EV/EBITDA is ~53 vs. Walmart's ~8 vs. Google's ~13. EBITDA is basically earnings but more complex ("earnings before interest, tax, depreciation, and amortization"). From what I've read there's concern Amazon is overvalued, but not what the Slate article portrays as them being some charity case, being invested in by people with ulterior motives to keep consumer prices low (I have no idea if that was even a sarcastic point or not. It's a terrible article).
  - kerno 14y ago
    It's pretty clearly a sarcastic point. The main thrust of the article is that Amazon appears to be given special treatment by Wall Street analysts and the investment community - everyone is banking on them being able to produce massive profits as a result of their relentless focus on growth at any cost. They can produce a loss for the quarter and have their share price rise significantly - other companies don't have the same luxury.
    - Evbn 14y ago
      Every growing company has the luxury.
      - kerno 14y ago
        At a Price/Earnings of 3,160.71, that is a lot of luxury.

vinhboy 14y ago

From a glass half full perspective. You can argue that Amazon is keeping profits in check so they can continue to offer their customers the best prices and services. But that's if you live in a world where bears fart butterflies.

mkuhn 14y ago
Actually you could rather say that Amazon is reinvesting its profits to strengthen its position and reap the benefits in the future.
- simonh 14y ago
  How far into the future? They've been saying that for 17 years.
  - muyuu 14y ago
    Except now they have profits and they had losses in the late 90s. They are still expanding to new countries. Last year, for instance, they opened amazon.es and amazon.com.br which are significant markets. I don't see what's the point in comparing revenue to profit ratios in wildly different sectors.
    - darrhiggs 14y ago
      Is amazon.es for latin america? AFAIK .es is España, and although it's ≈45MM, it's hardly a massive market WRT latin america.
      - danieldisu 14y ago
        significant != massive
      - lemma 14y ago
        No, it looks like it's targeted to Spain (which would make sense as far as logistics beacause they already have sites for France, Germany, Italy, and the UK).

batgaijin 14y ago

But isn't spending on infrastructure improvements cut into the reported profits? Considering how much Amazon is spending to consistently update their infrastructure, I wouldn't be surprised.

laluser 14y ago

You're missing the point here. Google's main business, selling ads, and Amazon's current main business, online retail, are two completely different markets. You're essentially comparing apples to oranges. The margins are lower in the space that Amazon is competing in, it doesn't make sense to compare two completely different companies.

w0utert 14y ago
Sure the margins are lower in online retail, but even then Amazon is performing abysmally, and the trend in almost all their numbers is downwards. The only reason they are still around in the first place, is sheer size. Smaller retailers would never survive on the profit margins Amazon is producing. The thing that sticks out most from their earnings release is that the trend is clearly downward. The profit margins and net cash flow are sinking, while operating costs, number of employees, etc are rising. Added to that, their market cap/stock valuation is truly insane, which IMO is a ticking time bomb. What this all means is that Amazon is going to get in a shitload of trouble somewhere down the road. Remember that they only made about $5 billion in profit over their complete lifetime, of which only about $1.5 billion is left after deducting losses, so in terms of cash Amazon is more or less on life support of their investors. All it takes is some relatively minor event (more focused competition, lower consumer spending, some kind of bad media attention) and their stock will tank, and the whole constellation could go down like a house of cards. No matter how much you like Amazon and its services, it's hardly an example of a solid business if you ask me.
- Retric 14y ago
  What your missing is they don't pre pay for there inventory. So while revenue vs profit might make it seem like they would quickly get into trouble a 10% drop in retail sales with far less issues than a software company operating on 1% margins.
  - w0utert 14y ago
    They might not pre-pay for the inventory, but they still have fixed costs, and they are rising, they have over 50k employees now. They _need_ to sell at huge volumes with the profit margins they are taking, otherwise they will bleed money. Some day, the fairy tale of 3000+ P/E and years of making next to no profits or even losses will be over and the stock will tank. Amazon will have a huge problem attracting funding to cover their fixed costs, they will have to fire lots and lots of employees at the expense of service and marketshare, and basically show us what the .com bubble 2.0 looks like.

necubi 14y ago

You really can't compare profit margins between a retailer and a software company. Amazon books the full price of the products it sells as revenue, but must pay most of that to its suppliers, whereas the marginal cost of most of Google's products is very near 0.

brisance 14y ago
Fair enough, but even then, AMZN is doing worse than Wal-Mart.
- suby 14y ago
  Walmart has to compete with whatever local stores are in your area. Amazon has to compete with every other website that sells things on the 'net. Plus I'm under the impression that Amazon is investing more into growth at the moment than Walmart is.
  - npsimons 14y ago
    Prime is really a killer feature. I'll find myself ordering things I never would have dreamed of buying online, or possibly at all (because I didn't know it existed). And this from someone who balked when Amazon first started selling things besides books!. Living in a small town might be a factor in this, however.
- arethuza 14y ago
  I was surprised to read that Wal-Mart has had some fairly large failures in some markets - notably Germany where they gave up and lost £3 billion. Is there any country where Amazon has tried and failed to compete?
- smackfu 14y ago
  If you look at 3Q numbers, AMZN had 27% revenue growth, while Walmart had 4%. That's a huge difference. (Walmart didn't announce 4Q numbers yet.)

sliverstorm 14y ago

Aside from the other things that have been pointed out, IMO Amazon is still trying to grow aggressively. Most "comparable" companies have settled in to a market and an operating model. Even Google simply seems to "explore" new territory, instead of pursuing it.

btilly 14y ago

it is only insane if you do not understand how Amazon makes money. If a retailer wants to double its revenue, there are two basic options. Double your margins. Or double your volume by cutting the time you hold inventory in half. Amazon has aggressively gone for the second approach, and is glad to cut its margin in half in return for tripling sales. Your "comparable companies" are not in the consumer retail business. And if they tried to maintain their margins while competing head on with brick and mortar commodity retail stores, they'd go out of business.

martinced 14y ago
"If a retailer wants to double its revenue, there are two basic options. Double your margins. Or double your volume by cutting the time you hold inventory in half." So there's an unlimited amount of buyers willing to buy and every time you cut the time you hold the inventory in half people shall buy twice as much?
- suby 14y ago
  I think they cut the time inventory is held in half by charging less and not making as much per sale, but making it up by moving more inventory.
- btilly 14y ago
  If you take shipments in fixed sized lots, every time you double your sales rate, you've cut how long you have to hold each item in half. Furthermore it gets better. Frequently if you have good credit, you can take a shipment, sell it, and then pay later. This gives you float that you can use for things like paying the overhead of keeping unpopular items in stock. (Remember, Amazon makes substantial money both from having things that are hard to find elsewhere, and by selling commodity items in bulk.)
ndonnellan 14y ago
What happens when states more rigorously enforce sales tax collection? Margin-be-gone?

mcherm 14y ago

I just want to point out that it's not 1% of ten million dollars, it's not 1% of a Billion dollars, it's 1% of FIFTY BILLION DOLLARS! Amazon is investing in growth right now. That's why their profits are so low. Normally, one might think that a company of Amazon's age and size ought to be through the growth stage by now, and in fact it is TRUE: Amazon has finished dominating the book industry, and really has no more room to grow. Except that they found new markets and moved beyond books. Now they are a universal retailer of anything that can be sold on the internet. But that market (although not fully saturated yet) still isn't big enough for them, so they've also moved into making tablets for the masses. And into running server farms for the entire world. As long as they keep knocking over new markets at this rate, they don't need to show much profit. [DISCLOSURE: I do not own Amazon stock, primarily because I think it is overpriced. So I suppose I don't completely disagree with the parent post.]

cube13 14y ago

Just FYI, the $631 million number is for 2011, not 2012. http://finance.yahoo.com/q/is?s=AMZN&annual http://finance.yahoo.com/q/is?s=AMZN&annual 2012 appears that it's going to be a net loss, because of their horrible Q3 numbers. http://finance.yahoo.com/q/is?s=AMZN http://finance.yahoo.com/q/is?s=AMZN If I were an investor in Amazon, I would definitely be worried at this point. Even though revenue is up sharply, Amazon doesn't appear to be making a consistent profit at all-their net income was down 50% from 2010 in 2011, even though they had a ~33% increase in revenue.

_k 14y ago
If I'm not mistaken, they do have 5 billion in cash and cash equivalents. ( I don't know where that came from, equity or net income in the previous years ? ) So they can keep this going for 18 more years. And then they can start selling their offices.
deleted 14y ago
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