Saturday, October 21, 2017

Amazon continues to grow, but still makes no profits

As Canadian and American cities desperately vie to outdo each other in a bidding war to host Amazon's second headquarters (HQ2), it's worth taking a closer look at the strange business beast that is Amazon.
We are used to thinking of Amazon as one of the most successful companies in the world, and in some respects it is: the company owns about a third of the huge American internet retailing market, and this could rise to a half within just a few years. It is worth around $460 billion (about 1,000 times its value when it went public 20 years ago). A graph of its share price looks like the archetypal geometric progression more commonly seen in fields like world population, and its price per share been hovering around the $1,000 mark for a while now. The revenue graph is a similar shape.
What Amazon doesn't do, though, is make profits. It has actually made losses in two of the last five fiscal years, and at no time in its 20-year history has it ever made a net income exceeding $5 a share. So, by the usual benchmark of success, Amazon has not been a stellar performer. However, this is mainly because founder and CEO Jeff Besos is so intent on crushing the competition that any spare cash is ploughed right back into bigger warehouses, new AI products, movie production, airlines, etc, etc. Bezos is single-mindedly positioning Amazon as the go-to company for pretty much everything, and he seems to be doing a bang-up job of that. And those tiny profits, then, are intentionally tiny profits.
Will this astounding growth ever translate into bottom line earnings? Possibly not, but investors don't seem to mind. They seem content to be as patient as Bezos, and to reap the huge share valuation advantages while they can. Bubble, anyone?

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