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Comment by Apocryphon | Hacker News Reader

Can't Amazon simply be the one major exception that proves the rule? What other tech company reached profitability after years of not, post-IPO? Using an industry giant as an example seems to be suggesting that such a case can be replicated, let alone replicated multiple times.

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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.

Virtually any business can eventually be profitable by operating at a loss until their competitors go out of business. Once the competition is gone profit is easy.

Until the moment a new competitor realizes there are fat margins in a currently non-competitive market.

"Your margin is my opportunity" as a famous business leader is fond of saying.

This is the theory that airline companies have followed since forever. Cliff notes version, thanks to chapter 11 bankruptcies, the competitors never will go out of business.

For another counter-example, take any business with low barriers to entry. Sure, one set of competitors go out of business, but you have new ones. Retail outlets tend to be a good example. Top retail brands change regularly as new ones come in and push old ones out. This has been going for as far back as I have looked. Therefore any retail brand should operate as if it will happen in the future as well.

As soon as profits are easy, you can be sure the competition will no longer be gone.

Amazon still loses money on its ecommerce side -- it is very much a cloud services company with a gift shop.

That's wrong. You are assuming a barrier to entry for a new competitor that is higher than the future profits for entering the market. Sometimes that exists (Google search?), but sometimes it doesn't.

As a thought exercise, imagine WeWork drove every office rental company out of business in the United States by running at a loss. To make a profit, they would have to raise their rents. When they do, any company can re-enter the market by buying or building office space to compete with them.

That theory implies a significant barrier to entry for new competitors.

In some markets that is justified. Those where significant infrastructure is needed to compete. For example Amazon's network of warehouses and datacentres would be hard for a competitor to replicate at scale.

For other markets, that's not justified. For example Uber, a small scale competitor can operate with some taxi's and an app. They won't have all of Uber's capabilities for sure, but they can compete in a locality.

How did Amazon "show" that?

Amazon's bottom line might not have been that great, but most of the difference from the top-line regularly consisted of dumping money into expenditures in areas that were pushing huge revenue growth.

It seems like people are suggesting analysts are dumb and didn't really dig beyond a basic top-line vs bottom-line glance when discussing Amazon's business model.

> regularly consisted of dumping money into expenditures in areas that were pushing huge revenue growth

Why do you say this? I find it unlikely that building out 2-day delivery was a major short-term driver of revenue. It was developing their moat. Similarly, building out a fulfillment service that directly cannibalized existing business was not a short-term revenue generator.

Twitter

Netflix

I don't have any dog in this fight, but listing Netflix is not correct. They went public in 2002, and were profitable in 2003, so not in the same camp as Amazon and Twitter at all.

(If you want to be pedantic, they were unprofitable for "year", not "years" after IPO)

There’s a parsing ambiguity I think. Is it “(reached profitability after years of not) && (reached profitability post-IPO)” or “reached profitability after (years of not, all of which were post-IPO)?

Ebiester’s initial comment on becoming profitable after IPOing with losses allows for either as a follow-up. We seem to have taken opposite readings without ill intent on either side.

Netflix is an interesting example. Every time they've approached profitability the market shifted and most of their investment was for naught. Now they look profitable because they can play with depreciation to book a profit. Cash flow is still negative and it remains to be seen if it every becomes positive.

In their 20 years they've managed to burn 10s of billions of dollars and they're still burning cash. Best case scenario they are still a decade away from generating more cash than they've consumed.

They were positive in April. https://www.hollywoodreporter.com/news/how-netflix-reached-p...

Sustained profitability is a different hurdle.

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