If you have positive return on cash invested people will be happy to keep giving you more money for decades even if you plough all your profits back into expansion. Amazon has had the option of returning profits for decades and has always aimed to just barely make a profit.
> Amazon was founded in 1994, first traded publicly in 1997, and didn’t turn a profit until 2001.
"Any company can theoretically choose to not be profitable, by reinvesting all of its profits, and investors typically don’t care if their value is returned via growth or dividends. " - the Amazon model for its first 20 years :).
The key thing to remember is that they expanded aggressively. People who didn’t do their homework - like most pundits and media stock analyst/entertainers - would dismiss them as another unprofitable .com without recognizing that they were becoming profitable in each new market a few years after entry and could halt expansion if they had a cash squeeze. The other point was being comfortable with low margins: that disappointed people who wanted a rapidly climbing stock price but that wasn’t the company they were trying to build and they’ve left quite a few once-hot companies in the rubble.
Profitably has never been the most pressing concern for these growth companies. Amazon went 20 years before turning a consistent profit, so it's not like there is a well-defined upper-limit where profitability is mandatory. Amazon made a trade-off choosing revenue over profitability, and that's what investors want.
Investors care less about actual profits than the ability to prove profits can be generated. Once it's demonstrated/proven that profits can be attained, investors become extremely patient. As long as potential profits keep rising, the enterprise value will rise, and investors will be happy. This is not the Warren Buffett approach, obviously, but that doesn't make it necessarily wrong or invalid. It's consistent within the theory of rational expectations.
IIRC, Amazon took something like 6 years to turn a profit. Its success is built off the hubris of investors at the time. Their business model was to sell everything at a lost to build up the brand, than assume profits will come later. In hindsight I doubt it's an event that can be repeated.
Their businesses are profitable, they just aren't booking profits. Odds are eventually they'll simply use free cash to buy back shares instead of reinvesting it. Which is why Amazon attracts quite a few very sophisticated long-term investors, and why they command a relatively high valuation.
I'm guessing the OP is talking about the PAST of Amazon, not the present. They ran for many years at a huge loss in order to capture the online retailing market, and didn't provide any returns for many, many years. Arguably, it worked.
Amazon did not consistently lose money. They were basically breaking even since the early 2000s and they proved they could turn on the profit faucet anytime they want once AWS came around. Although, they still heavily invest in infrastructure development, hence the continued low profit margins.
Correct me if I'm wrong, but Amazon was strongly cash flow positive as of 2002. Moreover, their operations were throwing off cash the year they went public (1997).
Everyone should be considering this a bit more because it says something about the irrationality of the current market. Large VC funds were investing under the thesis that some of the current crop of (now) less than impressive unicorns could follow the Amazon model: invest in growth at the expense of net income. These unicorns haven't simply failed to produce positive net income by intentionally following the Amazon model, rather they've simply burned through mountains of cash following less than impressive business models. They never followed the Amazon model to begin with.
Amazon hasn't made a profit only because they've chosen to re-invest every penny of profit they would make back into the company. If they were forced to show a profit next year, they could pretty easily make a few cuts here and there and produce a profit.
You should think of Amazon more like a real estate holding company. You could be incredibly successful buying and selling properties and never actually turn a profit, because you continually reinvest in new properties. You could easily have no profits and still have assets worth billions.
That's what Amazon is, except their assets are market share and infrastructure.
Maybe 20 years is too long for you to wait, but that's fine! The stock is priced accordingly so just cash out and let someone sweat the final liquid value of the assets.
Worth noting that Amazon had mostly profitable quarters during its entire history. And Amazon was, as far as I remember, always cash positive. Combined with basically growing 20% YoY for decades can justify quite high an evaluation.
Amazon is the exception so, not the rule. And not every company prioritizing growth over profits will end up where Amazon is.
It took Amazon more than 14 years—58 quarters after its May 1997 initial public offering—to make, cumulatively, as much profit as it produced in the latest quarter alone. Keep in mind that Amazon consistently lost money for its first several years as a public company.
Starting in 1997 they bled money with mounting losses until about 1999, when they began to turn things around. The dotcom pop is clearly visible but they recovered almost immediately and their losses continued to shrink until about 2001-2002 when they became break even. From 2002-2011 they either made small profits or nothing, but that was obviously because they were growing at a rapid pace and putting all the money back into the business. Once AWS launches in 2006 (so about 10 years after day 1 in retail) profits start growing but then are back into the red around the time of the GFC+recession, and again in the 2012-2013 European recession. After that it's stratospheric profits.
How much investor money is "infinite money"? Somewhere between $8-$9 million before they floated on the stock market.
Obviously, investors who put money into their IPO have done extremely well and cannot claim they were shovelling money into a furnace, far from it.
The inflation in investment round sizes over the past 20 years has been staggering. I see nothing that suggests Amazon was unusual in raising so little money (comparatively speaking) before they went public.
Amazon makes a profit, it just invests all of it in itself, returning you a more valuable stock instead of a dividend. Investors let them do it because the investment made with the profit is worth more than the cash would be.
Even with all that, the value of a company that doesn't turn a profit isn't 0, it's the value of it's assets, and Amazon has a lot of those.
> Amazon was founded in 1994, first traded publicly in 1997, and didn’t turn a profit until 2001.
https://www.investopedia.com/stock-analysis/031414/amazon-ne...
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