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> I don't really follow your logic. The point isn't to 'earn money' now. It is to build the economies of scale, over time, so that no one else can hope to compe
by pdq 12y ago
> I don't really follow your logic. The point isn't to 'earn money' now. It is to build the economies of scale, over time, so that no one else can hope to compete with them on price in the future. That is when the money will really be earned.
Amazon has had this mythical idiom of "when the market want us to give them profits, we will turn on the spigots". In other words, they can just scale back their future investments, and the money will start rolling in.
However, they have been running losses in general for 20 years. For a few quarters in their history, they made some small profits, but in general, even with all the dramatic scaling and efficiencies, they still regularly run losses. Investors have stuck with them for this long, but unless they really can start raking in the profits, I don't see how their stock can sustain such a high price.
If you look at the financials and business model, Amazon is basically the Walmart of the internet. They are in a low margin business, with high capital costs. However, their stock is still priced as if they are a software company with high gross margins (ie software costs zero to produce each additional copy). Walmart understands the model and is able to produce nice profits, and Amazon either has to follow or hopefully the market will finally figure them out and price them accordingly.
- srdev 12y agoWhere is this "Amazon is unprofitable" thing coming from? I went onto google finance, and it looks like they've had profits for 3 out of the 4 years of data that they have. Maybe not enough to justify the stock price, but they're making money.
- pdq 12y agohttp://finance.yahoo.com/q/is?s=AMZN+Income+Statement&annual http://finance.yahoo.com/q/is?s=AMZN+Income+Statement&annual Year Revenue Net Profit % --------------------------------- 2013 $74B $275MM 0.3% 2012 $61B $-39MM -0.6% 2011 $48B $631MM 1.3% Their best return was a 1.3% profit, back in 2011.
- srdev 12y agoThe numbers provided by Yahoo are in kilo-dollars, so its actually $631 million (and 5000 Bay Area engineers) rather than $631 thousand. Yes, the margins are low, which may be an argument that they are overvalued, but in absolute terms they are profitable.
- pdq 12y agoThanks, fixed. 0.3% is hardly a profit. Anyone can make more money holding CD's.
- srdev 12y agoWell now we're just quibbling over the semantics of what constitute "real" profit. It probably would be better to just argue that the profits that they do have do not constitute a good investment, which is a valid point of view.
- jamesaguilar 12y agoThat's not how profit margins work. Their revenue is not capital, and the net is not an interest they could potentially earn on revenue. You're thinking of something more like a cap ratio here. The numerator is profit but the denominator is capital invested, not revenue.
- bequanna 12y ago> Walmart understands the model and is able to produce nice profits, and Amazon either has to follow or hopefully the market will finally figure them out and price them accordingly. Apples and oranges. Check AMZN revenue growth in the past 5 years vs. WMT. WMT is (somewhat) mature, AMZN doubles revenue roughly every 2.5 years. Why show a profit if you don't have to? Management is obviously finding pretty good, revenue-growing investments.
- pdq 12y agoAmazon is mature as well; maybe not as mature, but 20 years is an old company. And Walmart has been making profits for decades, while their revenue has grown dramatically, and while they have been building extremely expensive stores and warehouses and supply chains. > Why show a profit if you don't have to? Management is obviously finding pretty good, revenue-growing investments. This is the nonsensical mentality that has blown up Amazon's stock price for more than the past decade. In the short term, absolutely, ramp up revenue and take losses getting there. In the long run, businesses exist to make the shareholders money.
- srdev 12y agoActual age in years is not particularly relevant in terms of maturity. Maturity, in this thread, has been used in terms of revenue growth. Amazon's revenue grew 20% over the last year, while Wal Mart's grew 1.6%. Its still valid to say that Amazon is in growth mode.
- bequanna 12y ago>but 20 years is an old company Umm, Google is a ~16 year old company. In 4 years, will they be an 'old company'? Please... >This is the nonsensical mentality This is how huge, borderline monopoly business are built. I am not sure you grasp their strategy. It sounds like you may be more comfortable investing in a stable, dividend paying, old line business that you understand.
- pdq 12y agoGoogle made more profits last year than Amazon has made in its history. They have scaled well and are in a high margin business, and Amazon is not. It's just that simple.