Both companies are profitable. This is simply a lack of understanding of business and accounting. Both companies are re-investing all of their profit in massive capital expenditures to support business growth - that's not a money losing endeavour, that's the same strategy that made Amazon into the behemoth it is today. It's also the logical strategy if you have a long time horizon for investment - which is arguably much better than companies which have short-time horizons.
Amazon is perfectly profitable. AWS being more profitable does not make the ecommerce unprofitable. Also profit is a financial formula derived from actual operating costs and margins.
Free cash flow has nothing to do with positive or negative cash flow, it is the payment cycle of AR vs AP that gives them a very big buffer to work with. Also you can't claim that they have very little space for growth and then discount the very subsidiary that's growing fastest.
Reinvestment isn't some made up argument, the company has been taking gross profits and reinvesting into expansion for decades. It's what they do best and it's crystal clear in the financial performance. Claiming that Amazon is insolvent (do you know what that means?) except for a single subsidiary is ridiculous and seems to indicate a failure in understanding the business or accounting.
And if you read the media and don't look at the numbers, of course you'd think that.
I ran the numbers a while back, for a similar discussion. They've grown faster than Amazon ever did, for a decade. It's kind of astounding. No, they're not profitable - and they shouldn't be. They're about a tenth the size of a major manufacturer like Toyota or GM now. If they want to play in that league, being profitable is fiscally irresponsible. They should be squeezing every cent they can out of investors and burning cash like they need it to keep warm, because that's fueling this astounding growth.
Insisting that they be profitable or not take loans or stock sales to raise cash is a complete misunderstanding of how high growth companies work.
But the point is that at the very beginning of their company, Amazon was most definitely NOT profitable. They took in a huge amount of investment money to be able to grow their business quickly - exactly what all these other companies are trying to do.
That's the wrong way to look at it. Amazon shows that it is important to differentiate between business that can be profitable but are reinvesting their profits to achieve long-term goals and business where the core business is simply not profitable.
Because they were using all profit to build out EC2, fulfilment centers and fullfilment tech. It wasn't that there wasn't profit because the margins were low, there wasn't profit because they were pouring it all into different verticals and building moats.
So yeah they weren't profitable but they weren't just scraping by either. I think that's one of those things that people miss when they compare a not-so-profitable startup to Amazon. The size, scale, and huge number of product markets that Amazon plays in is really pretty astounding for a company that is only 25 years old.
I'm sorry I was unclear but the reason Amazon is purported to have low profits is due to the massive capital expenditure that they do year over year. Hypothetically they could turn a profit when they want to.
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.
The idea that Amazon isn't profitable is laughable at best. Examine what they're doing. If they stopped constantly creating new business divisions they'd be super profitable. They continue to invest in new businesses, though, so on the whole they're "unprofitable" on a cashflow basis. On a sales basis though? Immensely profitable.
Just because Amazon has ideas about how to reinvest doesn't mean they're only breaking even on their sales or selling at a loss. Starting new businesses every year costs money. Amazon might not have balance sheet profits but the company continues to grow. How could they do that if they were making a loss on everything? They aren't issuing anywhere NEAR enough shares to keep the loss-leader scheme going on investor money: https://ycharts.com/companies/AMZN/shares_outstanding
A Motley Fool article claims that while AWS is successful, it isn't profitable, mainly because of the accounting behind capital expenditure. Last year Amazon spent more in interest than their entire operating income. http://www.fool.com/investing/general/2015/02/04/amazon-just...
It was very obvious that Amazon wasn't unprofitable in any real sense. They only raised $100m, and they kept growing.
The difference with Amazon is that they have a very capital-intensive business, and when these grow very quickly then the accounting is basically useless (you see this with some ecomm companies, in some countries the market literally does not understand operating leverage in these businesses...so the business will build a new warehouse, the stock will drop 75%, top-line is growing 50%/year, and then the stock 10x when operating leverage comes through).
I think profitability is a sign that your business works. The "first-mover" advantage is way, way, way overstated. Investing is growth is great, but some businesses are clearly investing in growth that is unprofitable (one interesting example here is NFLX, they generate a profit in accounting terms but it is pretty clear that their business is either not profitable or taking on massive risk for marginal profit).
Comparing profit doesn't really make sense either. Companies like Amazon show next to no net profit cause they choose to reinvest all their money to avoid taxes and shareholders reap the benefits through capital gains.
Most of amazon's business is profitable last I checked. The losses come from write downs and investments, but they aren't strictly operating in the red. The business they've built right now is sustainable just as it is.
Ok, so let's ask Amazon: they are both profitable and have a business model (further, for years running now, they've been able to demonstrate profitability whenever they feel like it to satisfy Wall Street worries). Their retail business has always had low margins, no different than Walmart by comparison.
Also, Amazon doesn't focus on quarterly profits, which frustrates the wall street types. That is different then not ever being profitable though. If there were never profitable Amazon would have to be raising more money constantly or slashing costs just to stay in business. Instead, they just run super thin margins and invest pretty heavily in new areas constantly keeping their margins super thin (sometimes negative).
Call me old fashioned, but I "value" profitable companies more than unprofitable ones. Amazon had a net loss of $241m last year[1], while Walmart had a net profit of $16b[2].
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