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Issuing stock is not the principle way they maintain positive cash flow. The float between the time their customers pay them and the time they have promised to
by Aqueous 11y ago
Issuing stock is not the principle way they maintain positive cash flow. The float between the time their customers pay them and the time they have promised to pay their vendors creates enormous, ever-increasing operating cash flow:
https://hbr.org/2014/10/at-amazon-its-all-about-cash-flow/ https://hbr.org/2014/10/at-amazon-its-all-about-cash-flow/
They are essentially borrowing from their own customers (or maybe more accurately, vendors), at zero interest, to continually build the business.
- ethbro 11y agoIncidentally, this is pretty much how Warren Buffett made his first billions with Berkshire to the best of my understanding. He realized that insurance generated enormous carry, and if you were able to better utilize that (say, by buying other companies and improving them) then you had a pretty winning strategy.
- ISL 11y agoMost insurance companies operate this way, which long predates Buffett. In fact, it's possible for premiums to sum to less than the costs of insuring precisely because of the float. Buffett has done well by choosing companies and people that are good at avoiding losing money. If Amazon had a viable competitor, the profits of float investments would be the ammunition in the resulting price war. Amazon's margin is someone's opportunity.
- yokohama11 11y agoNot even just possible, but the default of operation in the industry. Most don't turn an underwriting profit with any consistency and make all their money on their investments from that float.
- ethbro 11y agoI was under the impression that most insurance companies aren't part of a larger business entity that directly invests their float in other companies. I'd assume there would be advantages on that closer relationship vs a stand-alone insurance company simply investing in a publicly traded offering.