> Some businesses end up having the blessing of almost infinite expansion.
Without getting all Erlich/Simons, this is bad economics.
It's a logistical curve. it looks remarkably good until the inflection to asymptote happens. Market saturation happens. If you don't bring the undeveloped world with you there's no growth. If you do bring them with you then some goods sell for 2 dong in Vietnam and $20 in the USA.
No cost reduction or rate of improvement will get Amazon above longterm ROI trends forever. I agree it's been a remarkable run.
Amazon has built it's empire on 0% interest rates and have done little cost reductions so far.
It has plenty of underused logistics space.
Nobody actually knows it's real bottom-line numbers once more automation and better usage of resources happens.
It might be bigger than any company Today, so ROI is kinda unknown so far, they've invested in mainly growth opportunities so far.
Also, Vietnam and other countries in development can be really profitable and a vehicle for growth. Check how $MELI is literally Amazon for latin america, despite Amazon being there.
There are still many growth opportunities for Amazon logistics, for example getting bigger into the B2B space etc.
That is, while somewhat true, such an over-simplyfication that it is wrong again... And container rates have absolotely zero to do with any over capacities Amazon has in their fulfillment network.
Many nation-scale systems are self regulating and past a certain point of growth new factors kick-in. When environmental protestors are talking about your brand specifically; When political parties take notice of your impact on voters; When social movements identify you specifically.
The British East India Company became too much like a government and had to be nationalised
Countries based their foreign policy around unseating General Motors
Standard Oil was directly regulated out of existence
They were sensible enough to take some profits while times were good
I was thinking the same thing and expected that he starts to talk about how Jenny McNiggle has helped him tremendously with investing his money over the past few month and how she is just a master in this tough market.
> So I was never a crypto guy in any meaningful sense: I was a low-latency guy who understood market microstructure: but it was enough to see the Jonas Brothers play for 20 people and realize that Caroline had no business so much as hiring a risk management team in June of 2022.
> January 2021
> The essay above is now rather old, and amongst other things, it was written before Amazon started disclosing financials for AWS and for Marketplace. I wrote about that here, and have written a few other things about Amazon as well.
I'll just repeat my usual comment when it comes to Amazons profitability: They had 7 (!) loss making quarters since 2009, mostly in Q3 (as always, duu to the inventory build-up for Q4) and was profitable at a yearly basis.
Never profitable isn't literally correct, but when the net income is floating just above zero, the point is made. Walmart for example normally makes 10-15x the profit of Amazon (outside of covid). Amazon even has years of negative net income.
Amazon had, as far back as 2004, three negative years: 2012, 2014 and 2022. The last one due to some colossal write offs on a M&A if memory serves well.
What Amazon did was prioritizing growth over profits, and it worked marvelous. That focus is moving so, which makes sense as growth is limited.
If you look at a company and assume that you can shut the whole thing down except the sales team, usually it'll be profitable in theory. The problems only arise if someone tries that and then they'll discover that there needs to be a bit of a moat around the sales team to make the whole thing work.
Amazon's profits prior to 2017 were laughable. Even now their income is inferior to Walmart - and they have AWS as a business that is a bit of a cheat. Fair enough from a maney making perspective, but it makes it hard to do an apples-to-apples on how well they are running their retail arm.
Retail is a particularly brutal business to turn a profit in and while Amazon looks like it can do it, the proof isn't in yet. Walmart still consistently makes more money than Amazon.
"Oh we could make money at any time!" is one of those claims that is false until the proof is solidly in the rear view mirror. High revenue and 0% margins is a lot easier than middling revenues and a respectable margin.
Amazons retail business is doing just fine. Grew 20% YoY, give or take, for years. Is cash positive, basically all the time. And the last bit, positive cash flow, is so hard to achieve.
Cash flow is obviously important to you, but note that business profitability involves having positive cash flow and making a profit on it. It would be perfectly reasonable to discover in a few years that Amazon is structurally unable to make a profit without giving competitors an easy path to start cannibalising their business.
It is an uncertain scenario at the moment because it does look like Amazon will be one of the rare attempts that can find profits. But they haven't managed to outdo Walmart yet so there are obvious risks.
Positive Cash flow is what makes a company default alive, so it is important to everyone. Peofiability, EBITDA and ao on, live on a different axis. A company can easily be cash negative and profitable or cash positive and loosing money. The latter one is in a better position, a company that is both, profitable and cash positive, is in a great position (e.g. Amazon), one that is neither is actually dead.
So did the investors recover there investments, or did ali baba devalue them by copying to fast? Is venture capital just stupid money paving the way for those who come after it and dont' have to pay the learning dues?
In a world where all that remains viable is to become a game-theory parasite waiting on a tree-branch, betting on thrust-busting never to resume, what happens to the innovator?
Sears Roebuck failed. I'm starting to wonder if Sears Roebuck didn't fail by not innovating but perhaps the business is not very lucrative and it doesn't matter who tries. Retail, even at scale, is not wildly profitable- not in the $billions we come to expect from SV software companies.
If you're playing Terraforming Mars you want to build your "engine", in terms of resources or points generated per turn. The usual way to achieve this efficiently is to use up as much of your current resources as possible, so that they can compound over the course of the game. An innovative company should thus have costs exceeding revenue, as the costs should lead to future profits. It's of course possible to have costs that do not end up generating any kind of profit, but it would be a bit strange to see a company that has valuable ways to deploy capital simply refuse to do so
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