4 ms·

Bingo.

by pmarca 12y ago

Bingo.

mikeg8 12y ago
I've never really thought of it like this – interesting. Are there any other examples of large/popular companies on par with Amazon"re-invest" mentality? I can't think of any off the top of my head but would be interested to look at others. Thanks
- pbreit 12y ago
  Salesforce comes to mind.
- nostrademons 12y ago
  Berkshire Hathaway. Microsoft until c. 2006. Apple. Google. Most hedge funds. Standard Oil and U.S. Steel if you go back to the last century. Basically, it's rational for a company CEO to invest all profits back into the business as long as he expects he can make a better return for them than the market can. Berkshire Hathaway's annual reports go into more detail in this. The trick is in recognizing the size of the market opportunity in front of you, so that you know when to switch from reinvesting profits to distributing them as dividends. Microsoft waited too long for this - they burned (and are still burning) billion on unprofitable business lines. Google has had debatable success - some of their new businesses are brilliant, some are huge flops.
  - mikeg8 12y ago
    Thanks for your reply. Apple, and even Google, don't seem nearly as similar to Amazon in the question I asked. While they both invest heavily in R&D and other capex's areas, they also store a lot more cash (at least apple) and seem to report a lot more of a "profit" than Amazon. Do they re-invest _all_ profits or just a portion like most companies? People don't talk about Apple, Google, or Microsoft as companies that failed to become "profitable" in nearly the same way people talk about Amazon, at least from what I see. AMZN still seems like such an outlier...
    - nostrademons 12y ago
      They have different growth strategies because of their different core competencies, and those get accounted for differently under GAAP. Google tries to accumulate cash so that when there's an opportunity - say, buying DoubleClick or YouTube or Motorola - they can pounce. Since Google is basically an IP company and tries to avoid having physical assets on the books, these are usually whole other companies, usually technology-related. These opportunities are unpredictable, so they bank the cash on the books, invest it in liquid instruments, and then spend it all at once. Apple is a mature company now - it pays a dividend. But during their big growth years between the iPod & iMac and the iPad, they suspended the dividend, and ran very close to break even then too.
    - crucifiction 12y ago
      Think about it this way: Apple makes profit and stores it away as cash (recently it has given some of that cash back as dividends though). Since its cash, its booked as profit. Amazon makes profit and immediately finances new warehouses/robots/etc. with it instead. Since this is not cash it is booked as zero profit from an accounting perspective. Some investors like to complain about the lack of profit because turning it into an asset for the company to use makes it harder to give out to them as cash (dividend) but makes it easier for the company to grow. Many of the same investors use a flawed metric (P/E ratio) to saw that Amazon is effectively worthless, even though it dominates a market with huge revenue growth and a large amount of physical and virtual assets.

Bingo.

by pmarca 12y ago

Bingo.

I've never really thought of it like this – interesting. Are there any other examples of large/popular companies on par with Amazon"re-invest" mentality? I can't think of any off the top of my head but would be interested to look at others. Thanks

pbreit 12y ago
Salesforce comes to mind.
nostrademons 12y ago
Berkshire Hathaway. Microsoft until c. 2006. Apple. Google. Most hedge funds. Standard Oil and U.S. Steel if you go back to the last century. Basically, it's rational for a company CEO to invest all profits back into the business as long as he expects he can make a better return for them than the market can. Berkshire Hathaway's annual reports go into more detail in this. The trick is in recognizing the size of the market opportunity in front of you, so that you know when to switch from reinvesting profits to distributing them as dividends. Microsoft waited too long for this - they burned (and are still burning) billion on unprofitable business lines. Google has had debatable success - some of their new businesses are brilliant, some are huge flops.
- mikeg8 12y ago
  Thanks for your reply. Apple, and even Google, don't seem nearly as similar to Amazon in the question I asked. While they both invest heavily in R&D and other capex's areas, they also store a lot more cash (at least apple) and seem to report a lot more of a "profit" than Amazon. Do they re-invest _all_ profits or just a portion like most companies? People don't talk about Apple, Google, or Microsoft as companies that failed to become "profitable" in nearly the same way people talk about Amazon, at least from what I see. AMZN still seems like such an outlier...
  - nostrademons 12y ago
    They have different growth strategies because of their different core competencies, and those get accounted for differently under GAAP. Google tries to accumulate cash so that when there's an opportunity - say, buying DoubleClick or YouTube or Motorola - they can pounce. Since Google is basically an IP company and tries to avoid having physical assets on the books, these are usually whole other companies, usually technology-related. These opportunities are unpredictable, so they bank the cash on the books, invest it in liquid instruments, and then spend it all at once. Apple is a mature company now - it pays a dividend. But during their big growth years between the iPod & iMac and the iPad, they suspended the dividend, and ran very close to break even then too.
  - crucifiction 12y ago
    Think about it this way: Apple makes profit and stores it away as cash (recently it has given some of that cash back as dividends though). Since its cash, its booked as profit. Amazon makes profit and immediately finances new warehouses/robots/etc. with it instead. Since this is not cash it is booked as zero profit from an accounting perspective. Some investors like to complain about the lack of profit because turning it into an asset for the company to use makes it harder to give out to them as cash (dividend) but makes it easier for the company to grow. Many of the same investors use a flawed metric (P/E ratio) to saw that Amazon is effectively worthless, even though it dominates a market with huge revenue growth and a large amount of physical and virtual assets.