5 ms·

I think I know what you are trying to say, but my understanding is Amazon fails to report profits because they are heavily reinvesting into the company. I don't

I think I know what you are trying to say, but my understanding is Amazon fails to report profits because they are heavily reinvesting into the company. I don't think it is because they are taking a loss on sales.

deleted 12y ago
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msandford 12y ago
Agreed, nobody really understands that. Every dollar earned is a dollar invested without selling additional shares. When they're building hundreds of millions if not billions of dollars worth of infrastructure every year you can't expect them to make much money. Imagine a railroad had just completed the first trans-continental route and was very busy making money on that. Now imagine that they were also putting most of that money into building more track to service ever larger parts of the US directly instead of just NY<->SF. Should they be reporting huge profits? No because that money is going directly into more right-of-way and steel. Amazon is doing exactly the same but somehow almost nobody manages to figure this out.
- coldtea 12y ago
  >Imagine a railroad had just completed the first trans-continental route and was very busy making money on that. Now imagine that they were also putting most of that money into building more track to service ever larger parts of the US directly instead of just NY<->SF. Should they be reporting huge profits? No because that money is going directly into more right-of-way and steel. Yeah, exactly like that, only it's been 15 years already, and it's not like the don't already have the largest online store, or there's any magic solution for them to rise their margins in the future.
- martinald 12y ago
  But is it all going back into infrastructure and the like? What if it is allowing them to subsidise lower prices on products, killing competition? I don't really know of any other company that has managed to not produce really any profit in 20 years of operation, most of that as a public corporation. It doesn't seem sustainable to me. Also, to use your analogy most of the railroads ended up bankrupt/closed down because they vastly overbuilt with the assumption that more passengers and freight would come, despite going into really rural areas. It is perhaps quite apt for where Amazon could end up going.
  - msandford 12y ago
    Okay look at their balance sheet: http://www.google.com/finance?fstype=ii&q=NASDAQ:AMZN http://www.google.com/finance?fstype=ii&q=NASDAQ:AMZN Their R&D was nearly $7 billion in 2013. Could you cut that in half while running Amazon exactly the same way (i.e. not improving it but not making it worse)? I think so, and that would improve profits by roughly 10 fold. Suddenly Amazon's earnings multiplier isn't 500, it's 50. Furthermore there's another $12 billion in the selling/admin/general expenses line item. What's that? Could some of their building spree be contained within that item? Quite possibly. It's safe to say that it's coming from SOMEWHERE. I would be surprised if it cost them $300 per square foot between the building, the shelving, the conveyors, etc to build a new distribution center. At that kind of price a 1.2 million square foot building is a $360 million dollar expense. From what I gather they're building a couple of those every year. That adds up. What happens when they don't need to build new ones and can instead just operate their existing ones profitably? Do you hear stories of people being worked to death at Target and Wal-mart? I hear that at Wal-mar they keep their employees just shy of full-time to deny them benefits, but I don't read stories about how they're asking to do inhuman amounts of work. But I do hear those stories about Amazon. Sounds to me like they probably have a more efficient workforce coupled with cheaper real-estate and very low "shrinkage" (stolen merchandise). If their supply chain is more efficient than Wal-mart or Target and they aren't selling stuff much cheaper (seems like the Amazon discount is about 10% at best these days) then it stands to reason they might be able to make more money. I'm not saying that Amazon has crazy huge margins, but I do think that their margins are quite reasonable. They (Jeff Bezos really) just keep spending all the money they make to keep making the business better. Given how big retail is in the US I find it unlikely that they'll accidentally overbuild and find themselves in quite the predicament. It's not as though Amazon is building giant distribution centers on tiny islands where it makes absolutely zero sense. They're putting them near population centers, where people already buy stuff. Wal-mart did $450 billion in revenue in 2013. Amazon only did $80 billion. Target also did about $80 billion. So Amazon is now as big as Target but not as big as Wal-mart. The reports of Amazon's impending demise seem a bit overblown to me.
Fomite 12y ago
I think much of the skepticism is that they will never reach a point where their reinvestment is "done" and they begin taking profits.

deleted 12y ago

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msandford 12y ago

Agreed, nobody really understands that. Every dollar earned is a dollar invested without selling additional shares. When they're building hundreds of millions if not billions of dollars worth of infrastructure every year you can't expect them to make much money. Imagine a railroad had just completed the first trans-continental route and was very busy making money on that. Now imagine that they were also putting most of that money into building more track to service ever larger parts of the US directly instead of just NY<->SF. Should they be reporting huge profits? No because that money is going directly into more right-of-way and steel. Amazon is doing exactly the same but somehow almost nobody manages to figure this out.

coldtea 12y ago
>Imagine a railroad had just completed the first trans-continental route and was very busy making money on that. Now imagine that they were also putting most of that money into building more track to service ever larger parts of the US directly instead of just NY<->SF. Should they be reporting huge profits? No because that money is going directly into more right-of-way and steel. Yeah, exactly like that, only it's been 15 years already, and it's not like the don't already have the largest online store, or there's any magic solution for them to rise their margins in the future.
martinald 12y ago
But is it all going back into infrastructure and the like? What if it is allowing them to subsidise lower prices on products, killing competition? I don't really know of any other company that has managed to not produce really any profit in 20 years of operation, most of that as a public corporation. It doesn't seem sustainable to me. Also, to use your analogy most of the railroads ended up bankrupt/closed down because they vastly overbuilt with the assumption that more passengers and freight would come, despite going into really rural areas. It is perhaps quite apt for where Amazon could end up going.
- msandford 12y ago
  Okay look at their balance sheet: http://www.google.com/finance?fstype=ii&q=NASDAQ:AMZN http://www.google.com/finance?fstype=ii&q=NASDAQ:AMZN Their R&D was nearly $7 billion in 2013. Could you cut that in half while running Amazon exactly the same way (i.e. not improving it but not making it worse)? I think so, and that would improve profits by roughly 10 fold. Suddenly Amazon's earnings multiplier isn't 500, it's 50. Furthermore there's another $12 billion in the selling/admin/general expenses line item. What's that? Could some of their building spree be contained within that item? Quite possibly. It's safe to say that it's coming from SOMEWHERE. I would be surprised if it cost them $300 per square foot between the building, the shelving, the conveyors, etc to build a new distribution center. At that kind of price a 1.2 million square foot building is a $360 million dollar expense. From what I gather they're building a couple of those every year. That adds up. What happens when they don't need to build new ones and can instead just operate their existing ones profitably? Do you hear stories of people being worked to death at Target and Wal-mart? I hear that at Wal-mar they keep their employees just shy of full-time to deny them benefits, but I don't read stories about how they're asking to do inhuman amounts of work. But I do hear those stories about Amazon. Sounds to me like they probably have a more efficient workforce coupled with cheaper real-estate and very low "shrinkage" (stolen merchandise). If their supply chain is more efficient than Wal-mart or Target and they aren't selling stuff much cheaper (seems like the Amazon discount is about 10% at best these days) then it stands to reason they might be able to make more money. I'm not saying that Amazon has crazy huge margins, but I do think that their margins are quite reasonable. They (Jeff Bezos really) just keep spending all the money they make to keep making the business better. Given how big retail is in the US I find it unlikely that they'll accidentally overbuild and find themselves in quite the predicament. It's not as though Amazon is building giant distribution centers on tiny islands where it makes absolutely zero sense. They're putting them near population centers, where people already buy stuff. Wal-mart did $450 billion in revenue in 2013. Amazon only did $80 billion. Target also did about $80 billion. So Amazon is now as big as Target but not as big as Wal-mart. The reports of Amazon's impending demise seem a bit overblown to me.

Fomite 12y ago

I think much of the skepticism is that they will never reach a point where their reinvestment is "done" and they begin taking profits.