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You're right on with #2 there. Amazon has a carefully orchestrated spending machine that gobbles up all the available free cash flow (that would normally be pr
by msandford 13y ago
You're right on with #2 there. Amazon has a carefully orchestrated spending machine that gobbles up all the available free cash flow (that would normally be profits) for the sake of expanding old business lines like the Prime video library or creating new ones like Amazon Supply. Or in many cases, by buying up market share like when Amazon picked up w00t. Or buying up their primary robot supplier, Kiva, so that they're the first ones to get all the cool new warehouse equipment and ensuring that their competitors are a generation behind.
If you think about it, self-financing out of profits is a smart way to go about this empire building. If it was financed on bonds or loans they'd be under pressure to "turn a profit" on the investments and they'd have to pay some nominal interest rate. Selling more shares to raise the money would dilute everyone and if part of the plan is to enrich people through share price appreciation, that's not the way to do it. Plus it's easier for share prices to continue to go up on hopes and dreams of a wildly profitable future than based on actual earnings. Once you get into that you have to balance growth against reported profits.
- jacques_chester 13y ago> If you think about it, self-financing out of profits is a smart way to go about this empire building. Just a nitpick: they're financing out of surplus cashflow. Profit is what's left after everything else (including investment expenditure) has been subtracted from revenues. It's always worth studying both the income and cashflow statements. They can tell you very different stories about a business. People are particularly fond of getting stuck on looking at the bottom line of the income statement, when most of the useful information is sprinkled around the rest of the accounting statements.