doesn’t really make profits, but that’s not necessarily a bad thing

Second verse, same as the first (lil’ bit louder and a whole lot worse): for the latest quarter, Amazon’s revenues are up, but their profits are non-existent.They’re “the teacher’s pet” of Wall Street: stratospheric valuation (the stock has increased 32 percent this year), but terrible profit margins. They have 100 fulfillment centers (warehouses), which is twice what they had only a few years ago; they’re building three huge new ones — two in Florida and one in Baltimore. These are tremendous expenses, no doubt.

If you want to better understand why Amazon doesn’t really make profits, read this piece; basically, in short-form answer, they invest in the future. Jeff Bezos has claimed a couple of times that he could “flip” an earnings spigot and change the profile of the company; some are dubious. Amazon dominates in e-commerce but in other crucial areas, it’s not an industry leader — Wal-Mart crushes it in retail, Apple and Google beat it in tablets, etc. (It might, however, have the lead in customer service, although females will always tell you that’s Zappos — which is ironically now owned by Amazon.) Meanwhile, as all this happens, ‘the Street’ views Amazon as special, and Apple as something to punish.

Their model is so different that as growth slows, profit margins expand. You can criticize Amazon for a few things, but they’re doing pretty well for themselves, all told. I can also say from first-hand experience that they hire at an insane clip; most of their HR functionality is dedicated to recruiting and sourcing.

The short answer to this whole query: no, it’s not a bad thing that Amazon doesn’t make profits (double negative!) I’m not sure there’s really an “earnings spigot” that can be flipped, but it’s a valuable company serving a need. If our society becomes more and more online over the next 20-30 years, it’s possible Amazon could become the new Wal-Mart (that’s the theme of a lot of the YouTube comments above). And as for the answer to the question posed by this video below? Of course he does, and he has. He just bought The Washington Post, for chrissakes.

4 comments on “ doesn’t really make profits, but that’s not necessarily a bad thing

  1. […] doesn’t really make profits, and investors love it. Pandora is having strong growth in monthly active users, but was a company in 2005 and just had […]

  2. […] some ways, because while their sales growth — and the consistency of it — is stunning, they don’t actually make that much in the way of profits. In short, American investors tend to love companies with insane growth potential that may actually […]

  3. […] — Goldman thinks they’re worth 590/share — but Amazon overall is a behemoth. They don’t make profits per se, but if they choose to “turn on the spigot,” they would be […]

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