Why is Amazon all of a sudden not re-investing all its profits?
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Amazon then, being a services, merchandising, payment processor conglomeration then has to be crazy hard to manage cashflow in any meaningful way.
At NetApp there were other tools, service revenues, expenses, etc. One quarter the call went out for everyone to be sure they had expensed everything they had outstanding. Once the summer employee event shifted by a week. They would also do close the quarter incentive sales which could bring in just enough orders to keep it in line.
As far as I can tell this is something they teach in business school as part of your MBA training. It seems pretty universal. When things can't be managed that way, you get actual unexpected surprises, lay offs, or work furloughs, or perhaps you decide you aren't going to hire nearly as many next year so you trim all the contract staff.
Clearly people aren't as worried by over delivering as they are under delivering. As you can see from the Apple and Google earnings calls, a small miss negative can have an outsized impact on your stock price. But it is also important to not consistently have upside surprises as suddenly people start valuing the stock assuming an upside surprise.
Even developers do this, although most of us resent having to do it. You manage risk and tech debt by splitting high risk projects into many small pieces, and amortizing improvements across low-complexity features. The long and short lines are never more than an order of magnitude or so apart, even though it might take ten 'tasks' to equal one change that the customer will actually notice.
Jeff is only worth about 50 billion dollars (only what, 4x Musk?). Plus his rocket company is only landing suborbital flights. What scrub.
Musk is more innovative in areas that matter for meaningful human progress (SpaceX as opposed to Wal-Mart 2.0), but I believe as far as "business" is concerned Bezos is on top right now.
They have different priorities. Personally I'm a Musk fanboy.
Bezos made money on Amazon before he started Blue Origin.
Plus Bezos doesn't have an obsessive internet cult worshipping him.
Tesla has ~3,000 employees
SpaceX has ~5,000
Solar City has ~13,000
PayPal has ~13,000
Total: 34,000 as they stand today which is a very generous measure since it's years after Musk left PayPal and he doesn't even work at Solar City afaik.
Amazon has ~222,000 employees, roughly 8x larger than all of those companies combined, not even counting Blue Origin, WaPo, or w/e else Bezos owns, and they did $107,000,000,000 revenue last year, slightly more than all of Musk's companies' combined value.
http://www.geekwire.com/2015/huge-growth-amazon-reaches-2224...
[0]: http://www.wired.com/2015/09/whatsapp-serves-900-million-use...
The popularization of the term can be traced to 2006 when
Amazon.com introduced its Elastic Compute Cloud. [2]
[2] https://en.wikipedia.org/wiki/Cloud_computing#History_of_clo...
Unless we're enabling larger ecosystems around what they've done that creates even more. So far I'm seeing very little in terms of ecosystem around Musk's companies. On the contrary, he seems more focussed on doing exactly the opposite (like Tesla's focus on going around local car dealers).
It is not possible to be making things that nobody can afford to buy. This is because consuming or otherwise using something that already exists has no real cost. This is Say's Law ( https://en.wikipedia.org/wiki/Say's_law ).
And Henry Ford paid his workers a high wage because he tried a low wage and had massive, business-crippling problems with employee turnover. Working on an assembly line is hell. One minute of analysis will show that it can never be more profitable to a company to sell product to its own paid workers than to just not make the product in the first place.
Today, most mainstream economists reject Say's law.
...and it would be hard to accuse mainstream economists today of all being Keynesians.
edit: <i> to asterisk
Google search enables the people and ideas that are found on the other end of it. People pay for ads to help their businesses to be found which provides value for them and helps those other business to create jobs as well as profits to investors.
Amazon also enables the people selling good through it. AWS enables a lot of people via technology and resulted in an entire ecosystem around what it does.
Tesla is making electric cars, which is great. They're employing fewer people and doing very little in the way of surrounding ecosystem. The closest thing happening there is the Powerwall home batteries that create some opportunities for electricians. They did open up the specs for batteries though and that definitely could create some type of ecosystem, but that remains to be seen.
SpaceX won't be creating an ecosystem anytime soon. Maybe one day and it's certainly worthwhile R&D but the value to society is harder to find.
I'm sure it will happen eventually, but where things stand now Bezos stands as much more accomplished.
People want a Tesla. SpaceX (and I do like this) is really open compared to Jeff SECRECY! Bezos' Blue Origin.
What do these people do? I mean, for the other companies you quoted, there are physical products to be designed, manufactured, mounted or moved, I get it. But Paypal?
I am not even touching on the foresight of AWS or his stewardship of the company in general. I think he deserves far more credit than you are giving him.
This sort of comparison is a silly thing, a hero worship kind of behaviour un-characteristic of HN. However people still want something to compare. How about instead of just being capital etc add some other measures like business risk, turning around from absolute failure, fighting david and goliath in same industry, building something that was just given up by all etc . Again these measures are subjective and there could be somebody else who may like building a steady growth or being more charitable and equitable etc.
We like to see the world and measure it up in the way its important to us. When somebody says X is the greatest person, then realise that he is measuring with the qualities he finds important.
Because they're "proving" they can make a profit when they want to in preparation for spending a decade investing 100% of profits into building a world-wide logistics system.
(I think it's an interesting theory, but the author provided little evidence.)
1) Shipping is the definition of a commoditized business. Unlike AWS, for example, they will not be pioneering a new business model or technology.
2) What they pay right now to FedEx, UPS, USPS, DHL, OnTrac, etc. should be very close to zero margin, given their position to negotiate those companies against each other in real time. Surely, the margin should be comparable to the cost of capital.
3) Amazon seems to represent less than 10% of packages in the US [1]. Given that they have to cover more or less the same area as other shipping companies have, they will not have the economies of scale of other firms, so their cost per shipment may end up higher.
https://www.quora.com/Shipping-What-percentage-of-UPS-shipme...
I'm guessing it's the one-hour-delivery thing - last year they started testing one hour delivery for popular products in a couple of pilot cities.[0]
Presumably they can't do one hour delivery with a traditional model of centralised-warehouse -> shipping company -> shipping company's regional hub -> customer; they need an Amazon warehouse near that city, with products dispatched from there to the customer directly, or it takes too much time. Building a warehouse and dispatch operation near every major city won't be cheap.
[0] http://www.bbc.co.uk/newsbeat/article/33332018/amazon-launch...
One is products that seem to be sold from an Amazon controlled or contracted warehouse, and the other are products sold by local businesses (e.g. produce from Westside Market).
Have some high impact document that needs to be shipped somewhere within 24 hours and be guaranteed to get there safely? I can't imagine trusting anyone but FedEx for that.
http://www.federaltimes.com/story/government/management/agen...
No. They represent <10% of revenue for UPS, as the cite says.
That gives you no info about the percent of packages for UPS, despite the quora claim. It's not safe to assume they pay what others pay, and in fact, given the range of volume discounts, it's entirely possible they pay 1/3rd-1/5th what others pay, if not less. (I base this on the fact that the companies i've worked for, which have nowhere near amazon's volume, seem to pay around that). If that was correct, they could represent 5-6% of revenues but 15-25% of volume.
(it also tells you nothing about overall. It could be that combined across 6+ carriers, they represent a large percent of all package volume in the US).
I would not underestimate what Amazon could pull off with complete control of shipping & logistics.
Except Amazon has been innovating in the shipping area. Many times Amazon can get stuff to my building faster than I can go out and get it from a store.
So they started in online retail with < 10% gross margin. With AWS with its ~40% GM they have INCREASED the GM of the company. Contrast this with Microsoft and Google which sell software at 80%+ GM. When they do Azure or GCE, they have to decrease their GM. This is hard! FedEx runs around 60% GM. So just think about what this will do for Amazon ...
They succeeded there because they didn't pay sales tax so they had a 5-10% advantage over brick and mortar.
Now that that advantage is gone, they are finding that retail isn't so nice anymore.
If Amazon reinvests into assets, that money isn't considered a loss. So it doesn't reduce profits. So when Amazon buys a video library those IPs are assets.
You only deduct spending that are expenses.
As Amazons business changes it might be harder to hide their profits in expenses.
At some point Amazon is going to get a return for all of its investment. The entire market is now dancing to Amazon's tune. Why not now?
That's cash flow minus capital expenditures which means, at some point, Amazon is going to have to decide enough is enough and allow overall cash flow to come in well above its capital expenditures...like it's just done. Better a bit sooner than later (thanks to the discount part) if you think can sustain your advantage for less than you've been spending in proportion to your revenue.
Perhaps Amazon has reached some sort of cruising altitude.
Less of a quibble and more of a core misunderstanding of what cash flow means in that context.
I think a couple years ago they got tired of their stock tanking every time they reported a lower profit than previous quarters.
So who exactly do you think has pockets deep enough to fund this 250 billion loan and accountants so terrible they can't see how badly it's going to go?
Technically that counts as reinvesting profits, but its the old "Are we an X company or a real estate company?" issue that happens so often.
Personally I think it's the last chance for Bezos to roll around in his piles of cash before he has to start giving some back to his investors.
http://www.theverge.com/2013/10/24/5023454/amazon-giant-biod...
When $AMZN girates or tanks, at least some part of their workforce would be tempted to leave. Though maybe that's the exact segment they wouldn't mind see leaving anyways?
Generally the people who leave voluntarily are the people you don't want to see leave. Good talent is likely to have little difficulty finding better opportunities. Mediocre to bad employees are going to have a hard time finding another job, so they stick around.
This is based on my personal observations as an Amazon employee, and not just hand-waving, by the way.
I don't think Amazon are preparing for period of capital investment - making profits and then taking them away is surely worse than consistently making very little as far as the stock market is concerned.
This is not the sort of problem many businesses come up against.
It seems like you would have to look at their balance sheet to answer this, not just their income statement.
Much of Amazon's expansion is in physical facilities. Those are hard assets which can legitimately be financed with debt at low interest rates.