Amazon Has the Most Generous Shareholders in the World

http://www.slate.com/blogs/moneybox/2012/12/12/amazon_s_zero_profit_business_strategy_it_s_amazing_but_someday_we_may_all.html

by 1337biz • 14 years ago

41 42 14 years ago

slate.com

crististm3• 14 years ago

PR bullshit

Steko3• 14 years ago

How is this PR? This is not a pro-Amazon article in the slightest.

crististm3• 14 years ago

Then it fails at being anti-Amazon too. Either case it's a waste of time.

Crake2• 14 years ago

Oddly, I think their warehouse employees might beg to differ. (Especially right now, since it's the middle of the Christmas rush.)

alexakarpov2• 14 years ago

They actually tend to like the Christmas rush. Temps, anyway. Gives a person without any alternatives on the market some decent cash, since this time has a lot of overtime hours available.

dbecker• 14 years ago

Just a couple weeks ago, I met someone who works at an Amazon warehouse. He liked his job, and he seemed happy about the overtime he'd receive during the Christmas rush.

Crake2• 14 years ago

That's good. I remember reading an article a while back about the working conditions in amazon warehouses and it sounded really unpleasant. I don't think it was this article exactly, but this one is pretty similar: http://www.mcall.com/news/local/amazon/mc-allentown-amazon-c...

I love Amazon, but I hate to think of people being miserable and in terrible pain as they put my order together.

neeee• 14 years ago

I call submarine on this.

shirro• 14 years ago

Perhaps I don't understand the money side of things enough to comment but I think Amazon is doing a hell of a lot more than undercutting competition by withholding profit from shareholders. They are identifying vulnerable businesses and totally reinventing them. While they are out there conquering the world I can understand why shareholders would be happy to see them reinvest in their business.

crististm3• 14 years ago

you know, Amazon is not Prince Charming

paulhauggis• 14 years ago

It's more than just this. They also undercut their own third-party sellers and use them to find profitable products. This happened to me all the time when I sold products in the Amazon marketplace.

jfb2• 14 years ago

But they eventually will have to make money, or (so orthodox thinking goes), the rational market will punish them. I am skeptical to the point of open cynicism over rational market theory, but that's the point that Yglesias is trying to make.

Lio• 14 years ago

Amazon are also able to grow by moving from market to market under cutting local bricks and motar stores by not paying local taxes.

They really compete only with other internationals who are also able to "offshore" they're taxes. (That's meant as an observation rather than a political comment).

handrake• 14 years ago

I think MS was pretty much the same way until very recent. Maybe companies really start making money when they stop being innovative.

precisioncoder• 14 years ago

https://news.ycombinator.com/item?id=3641184 I was pretty shocked when I read this, opened up my eyes to what happens behind the scenes at these online ordering companies. This article seems like it is mostly PR, I've heard a few other horror stories about Amazon, such as the kindle remote deletion crap. http://news.ycombinator.com/item?id=4682392

alexakarpov2• 14 years ago

That original article does... distort and decorate the truth quite a bit.

Atropos2• 14 years ago

He doesn't seem to know what he is talking about. This "If your profit is not healthy, people sell your shares and then you get bought out by a private equity firm" There are P/E ratios between "massively overvalued" and "massively undervalued" and there is no rule that you have to jump from one territory into the next - you can be overvalued and then adequately valued by the market as well...

And there are many companies not paying dividends. In growing companies it can make sense. The Washington Post pays dividends and is down >50% for the last 5 years, while Amazon is up 166%... Who has the generous shareholders now?

Steko3• 14 years ago

"He doesn't seem to know what he is talking about."

HN has this sort of innate skepticism that is just adorable. I assure you Matt Yglesias knows what he is talking about.

"There are P/E ratios between "massively overvalued" and "massively undervalued" and there is no rule that you have to jump from one territory into the next"

He's making a general point about share price and profit not saying that unless you have giant profits you will be bought out. Low profits are normally punished by wall street, Amazon is an anomaly.

"Who has the generous shareholders now?"

Probably the company with a 3600 P/E ratio.

Atropos2• 14 years ago

I'm not from the US, I have neither in depth knowledge who Yglesias or this magazine is. From his wikipedia profile it seems he studied philosophy and never worked in finance - which is exactly what I would have suspected...

I'm not saying Amazon isn't overvalued. But to posit that, you have to make a comparison with a similar technology company and compare their respective growth prospects - of course nobody is buying Amazon stock because of their current profits.

A statement like "The P/E is high, other companies have a lower P/E, therefore the shareholders are generous" does not have any value at all and does not reveal profound domain knowledge.

graeme• 14 years ago

'HN has this sort of innate skepticism that is just adorable. I assure you Matt Yglesias knows what he is talking about.'

Yglesias is a bright guy, but he's routinely mocked in the political blogosphere for commenting on every issue under the sun, regardless of whether he knows what he's talking about.

It produces a mix of cogent commentary and absolute nonsense, and if you're not familiar with the underlying issues it's very difficult to tell which is which.

I can't cite any examples, because I stopped reading political blogs around 2009. But that was his rep amongst various bloggers and commentors back then.

mikeash• 14 years ago

Can you explain why Matt Yglesias would know what he's talking about, rather than just assuring us? You may be right, but some quick searching doesn't turn up any particular indication of expertise. Would be nice to know what causes you to say this.

rm999• 14 years ago

Ooof, very dangerous use of appeal to authority. Markets are probably one of the last places you want to build an argument on "that's what this expert said" because experts are always disagreeing with each other. That's sort of the point of a market: find a valuation that is above what some people think it should be and below what others think it should be.

The value vs growth argument on amazon has been going in circles for years now. No one is saying anything new anymore.

xyzzy1232• 14 years ago

Conveniently ignoring 34% revenue growth per year for the last 5 years: http://ycharts.com/companies/AMZN/revenue_growth

Perhaps Amazon's investors recognise that there is still a lot of room for growth in online commerce...

greedo3• 14 years ago

He's not ignoring the growth. He's dismissing it because growth by itself is meaningless. Profit is what's relevant, and unless you can improve your earnings, you're not functioning efficiently from a capitalistic viewpoint. As he discusses, Amazon shareholders are expecting that at some point, Amazon will be able to somehow ratchet up their profit margins, and the subsequent earnings boost will provide value to their shareholders. If that never happens, AMZN is a bubble just like tulips.

xyzzy1232• 14 years ago

I see your point.

Perhaps what's reassuring to investors is that Amazon don't have to change their business model to become profitable. They just need to pull the pricing lever a bit harder.

jimfl• 14 years ago

Except that every time they can, Amazon reduces their prices. Any investor who thinks that they will at some point increase margins doesn't listen to what Jeff Bezos says: we're good at running low margin businesses, and that's what we will continue to do.

brianchu• 14 years ago

In the same vein, profit by itself does not give you a complete picture. Obviously, the reason some people are still investing in Amazon is because they believe (rightly or wrongly) that Amazon will grow in the future. There are some plausible reasons this might be true: Amazon has been spending heavily on long-term investments like the Kindle (sort of like the Xbox was for Microsoft, before the Xbox 360) and expanding cloud computing capabilities. Time will tell.

jfb2• 14 years ago

Revenue growth is meaningless without profit. It's just a hook to hang lots of unproductive magical thinking on.

farnja• 14 years ago

I read the article and don't come to the same "generous" conclusion. You've got a visionary, well-respected, CEO running a very (by many, but not all metrics) successful business with a lot of runway. The result is analysis that runs from calculated, to wildly optimistic, to delusional. There are people afraid to miss the boat if Amazon conquers the world and people already counting their millions as they wait for what they assume is inevitable. Amazon has the benefit of being a very proven business with sustainable competitive advantages, but at the core, this is no different from any of the other speculative manias in financial history. Amazon shareholders could be right, they could be wrong - I'm not good at predicting these things - but they're definitely not generous. They're fearful, and greedy, and emotional, and human.

msrpotus• 14 years ago

What's their ownership structure like? Do Jeff Bezos and friends control enough of the company that they can just go on, assuming that the profit will work itself out?

adventured• 14 years ago

It's not a mystery, it's supply & demand. The stock stays high in part due to who the shareholders are. Bezos and his family control 1/4 of the company directly, and a handful of institutions control another 1/2 of the company. Lack of oversupply of freely available shares at a high valuation, is one reason the stock defies gravity.

The other part of it is the narrative that Amazon sells.

But let's not pretend it has always defied gravity. Besides the obvious dotcom crash, their stock produced essentially a flat return from June 2000 until April 2007, with various ups and downs.

programminggeek• 14 years ago

To be fair, part of Amazon's stock price is the incredible durability it has shown as an internet company. It's one of the few companies that survived the .com bubble. Also, it's growing and innovating in about every direction. Five or ten years ago they were an online bookstore or an online store. Now they're an online marketplace more akin to eBay. And they almost singlehandedly made digital books relevant. And they are powering the infrastructure of huge companies like Netflix, Zynga, etc. And they have the most popular Android tablets. And... And... And...

Amazon's customers love them.

cm2012• 14 years ago

We sell jewelry on Amazon as a third party seller. Growth has been consistent for us and substantial over the past two years. We also drop-ship for a number of wholesale customers also on Amazon who are increasing sales in step with us.

saosebastiao• 14 years ago

Making profits and realizing profits are not the same thing. Amazon is acting as its own venture capital company. They make that much known in their shareholder statements. And the reason why people pay 3600x earnings for a share of the company is that they know where the company is headed.

Let me put this in perspective: Amazon grows consistently between 30-40% a year. Not a big deal...right? I mean lots of companies grow quickly. But how many companies do you know that grow 30-40% per year, when starting from the ~$50B range? They are literally adding a new Fortune 500 company's revenue every year. Nobody does that. And that is what makes them distinct.

You may argue that you still don't think they are worth it. But the story of the 3600x P/E anomaly is actually a story of an anomaly in revenue growth...not of charity, generosity, or ignorance.

DVassallo• 14 years ago

>But how many companies do you know that grow 30-40% per year, when starting from the ~$50B range? They are literally adding a new Fortune 500 company's revenue every year. Nobody does that.

Well, AAPL does.

jstanderfer• 14 years ago

No one doubts that Amazon's customers love them and that Amazon is growing revenue at an incredible rate.

The question is when and if will this revenue growth translate into increasing margins? Revenue growth without profit has very little value (see Groupon) and the nature of their current businesses make it difficult to establish a competitive position where you can increase margins by charging a premium versus your competitors.

For reference - Wal-Mart has operating margins of 6x those of Amazon, has 8x as much revenue as Amazon yet is only valued at 2x that of Amazon. It would take Amazon almost 8 years of nearly 30% growth in revenue and profit margin to match Wal-Mart, a company which trades at a PE in the low teens.

Amazon Has the Most Generous Shareholders in the World

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