Amazon Is Now Worth More Than Wal-Mart
blogs.wsj.com
blogs.wsj.com
Amazon Full Time Employees: 154,100
Walmart Full Time Employees: 2,200,000
(Based on Yahoo Finance Company Profile Stats)
There is a growing need for Human's to work Lesser Hours going forward rather than more Hours.
Amazon: 670k Walmart: 220k
Assuming the ratio stays the same, when Amazon gets to Walmart level sales, it will need about 700k employees which is still 1/3 of Walmart's current employee count.
Self-driving vehicles will probably replace the need for most of these employees, however.
Shit, with retarded patent system in US someone is already patenting this as you read my post.
I agree that the last-mile driver will stick around for a bit longer, but their number is relatively small.
For example: UPS owns 100k vehicles, worldwide[1].
In comparison, over 3 million people are employed by the transportation industry in the US alone[2].
[1] http://www.ups.com/content/us/en/about/facts/worldwide.html
What am I missing?
Although I suspect a compressed air tank with enough capacity would be way too heavy for a drone to carry.
The power to weight ratio is the key issue. Also -- noise could be an issue too -- want to have quiet deliveries.
I'm thinking parcel cannon + small airbag bumpers and maybe a little parachute to slow decent at exactly the right time :)
This is misleading. All valuations are based on the discounted value of future cash flows. There are three variables at work here: today's cash flows, the growth rate of these cash flows and the discount rate. The market is simply saying that Amazon's growth prospects outweigh it relatively smaller size.
For equity market cap value that the article and previous person are talking about? No.
Edit:
The only point I'm trying to make is that an investor, when they exchange money for a stock, is placing a bet on a single outcome: future cash flows. Of course there are plenty of ways to get those cash flows, but I find that most people get caught up in details like employee headcount and fail to grasp the single most important factor: compound growth.
What I was criticizing was just using the ratio of present market cap and present headcount as a meaningful metric, when comparing companies with very different growth expectations. That effectively becomes a restatement of the different growth expectations: Amazon has the same market cap as Wal-Mart but its present size is smaller in almost any way you could count present size (sales, headcount, etc.).
Perhaps you meant 'emotional' or 'irrational' rather than 'speculative'.
What I meant was that much investment is speculative, and that speculative investing is not solely, or even mostly, based on a purely rational model e.g. one that is based on a prediction of future cash flows.
It is usually based on betting on the the future price of the asset, independent of fundamentals. Some of these approaches are more justifiable than others: market momentum, qualatiative prediction of the company's valuation trajectory, trendy but questionable financial metrics, sophist technical analysis etc.
This only holds under the assumption of rational expectations.
Under the more reasonable assumption of heterogeneous expectations, it becomes necessary to think about what the market on average expects (or, possibly, other functionals of the agent population if the assumption of competitive markets is violated); the more so the shorter your investment horizon.
See for example
[1] F. Allen, S. Morris, and H. S. Shin. Beauty contests and iterated expectations in asset markets. Review of Financial Studies, 19(3):161–177, 2006.
which shows the failure of the law of iterated expectations (which is used to establish your original assertion) for the average expectations operator.
You then have
[2] P. Bacchetta and E. Van Wincoop. Higher order expectations in asset pricing. Journal of Money, Credit and Banking, 40(5):837–866, 2008.
who derive a gap between price and fundamental value (understood as the NPV formula that would prevail without the interference of higher-order beliefs) in the presence of heterogeneous expectations.
And last but not least,
[3] M. Kurz and M. Motolese. Diverse beliefs and time variability of risk premia. Economic Theory, 47(2-3):293–335, 2011.
who generalize this from the asymmetric information frameworks used above, where expectations are coordinated by the public signal, to a symmetric information setting where it is the correlation of beliefs that coordinates expectations.
In the end, this is all building on Keynes's original intuition that if agents hold diverse beliefs about the future "the energies and skill of the professional investor and speculator are […] concerned, not with what an investment is really worth to a man who buys it ‘for keeps’, but with what the market will value it at."
So no, it is not necessarily the best strategy to only focus on NPV of cash flows. The shorter your time horizon, the more you depend on what "other people" expect too, whether you think them foolish or not.
_____________________
PS: Of course, if you believe that you have no predictive power w.r.t. what "Mr. Market" thinks (to borrow from Ben Graham's exasperated simile), then by all means your optimal strategy becomes to lengthen your horizon as far out as possible and concentrate only on NPV of cash flows, just as you said, in the spirit of value investing. I'm only pointing out that the optimality of this strategy hinges on both your investment horizon and your belief about your relative predictive powers w.r.t. "Mr. Market" and the fundamentals (leaving aside positive feedback loops or what Soros called "reflexivity" between price and fundamentals for now).
Individual agents are free to be irrational, biased, and heterogeneous. In fact, heterogeneity is required in nearly any model, otherwise no trades will occur.
Good point, although I didn't say they did. One can indeed view RE as a special case of heterogeneous expectations, and in fact that is essentially what I argue in a paper I am working on: That efficient markets are a region in the parameter space of more general market models, and that by traversing that parameter space one can generate different market outcomes. By way of illustration, take the public signal out of the above cited paper [1]. Without the coordination provided by the public signal the law of iterated expectations works again for the average expectations operator!
Regarding the source of heterogeneity, I don't agree with your citation of irrationality or biases. I am not an expert on behavioral economics but from what I understand, behavioral models seem very fragile to the insertion or presence of even a few rational agents, hence the need to erect "limits of arbitrage" by adding frictions, constraints, etc. It is possible to motivate heterogeneous expectations in a more robust way, see my reference [3] above and further references therein, for example. The basic idea is to generalize the economic system from ergodicity or even stationarity, so that heterogeneity is motivated epistemologically, rather than psychologically.
A rational investor knows how others value something and acts accordingly. What you described is one way to value something. If it was just you and me buying stocks, I would know how you act and get in front of your behavior to profit from it.
In finance you don't have to be the smartest person in the room to succeed, you just need to know the most about what everyone else is thinking.
It'll still be a lot less than Walmart since they don't have brick and mortar stores on a large scale and Amazon is very bullish on robotics.
Thus from a business perspective you get rewarded by keeping workers off your payroll, but I don't think it means people aren't working for you. The poster child for this is the 'sharing/gig/slaving' economy type places.
Because of that I am not convinced there is actually less human capital in moving the goods through Amazon or Walmart, but I do agree its accounted for differently. And that means I really can't agree with it as evidence to support the claim that humans should work fewer hours.
It would make for a great paper, maybe even a nice book, on comparing how many hours of labor are invested and how many people in getting a product from manufacturing to your hands using the two different product flows (and doing that for a representative sample of all products offered).
That seems to be the new entry point for a lot of service/retail work. Get past the trial period and there may or may not be opportunities to move to forty
When I was a contract programmer at Apple In 1990 I was told that it hired so many contractors so it could inflate the ratio of revenue to employees, which would inflate the stock price. While Apple still had to report our pay it was some other kind of business expense, like office furniture.
But dont you have air conditioning my mother asked.
The federal regulations specify the temperature in which AC is permitted he replied. Washington DC is the coolest place that permits air conditioning.
By Marketcap: Facebook > Amazon > Walmart By FTE: Walmart(2.2 million) > Amazon (150K) > FB (10K)
I realize FB is not in the same business, but I wonder what view those picketing Walmart for unfair and unjust labor practices have of the 'new economy businesses' that are being valued higher yet employ fewer Americans. Do you protest the jobs that were never created ?
Yeah...
See http://www.pewresearch.org/fact-tank/2014/10/09/for-most-wor... , and this quote: "In fact, in real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today."
it's also easy to argue that the typical metrics used in this comparison are misleading.
A "typical middle class worker" in the early 1970s lived in a house that was built in the 1950s or earlier, around 1200 square feet, 1 bathroom, 2-3 bedrooms, without air conditioning or a washer/dryer, and had one vehicle available to the household [0]. Nowadays, we consider that "the projects", undesirable housing for poor people, while the "middle class" live in considerably larger dwellings with more amenities.
The reason I mention this is that real wage / purchasing power comparisons almost universally use "average housing costs" as a significant part of the metric, and "average housing costs" are in no way measuring the same thing. ( It so happens that I live in my childhood home, which my parents purchased in 1975 for $32,500 -- about 3.1 times the national median household income. I purchased it from them in 2012 for $135,000, a mere 2.7 times the median income.)
If you actually compare the goods a median-wage worker can purchase today to the goods a median-wage worker could purchase in the 1970s, there are definitely some things we have a harder time affording (like routine health care), but with the majority of material goods, you can get much bigger/better/faster/higher quality stuff for the same portion of the budget [1]. A modern middle class income gets you much better than 40-years-ago middle class living conditions.
[0] dig through the reports at http://www.census.gov/programs-surveys/ahs/data.All.html for details
[1] http://nonprofitupdate.info/2011/07/27/i-can%E2%80%99t-think...
So please, name them.
Real hourly compensation has risen: https://research.stlouisfed.org/fred2/series/COMPRNFB
Anyone pushing wage numbers is playing a game of hide the salami, and ignoring the trend towards a larger portion of income being given in forms other than money.
More importantly, though, the Fed graph you show is an average (the real hourly compensation one). With growing inequality, using the average hides the fact the improvement for the median worker is much lower.
If you feel consumers are overconsuming medicine and driving up the price, there are lots of great ways to fix that. The most effective is high deductibles (currently illegal).
I know you are aware that life expectancy is minimally related to health care consumption, so why do you bring it up?
If you have data showing that median real compensation per hour is lower, show it.
And again, since household income has not moved much (according to figures I cited), you still need to provide an explanation for why we don't seem to consume less. (Hint: the basket of goods in CPI changes and $1 of chained-CPI adjusted wages today buys more than $1 of chained CPI adjusted wages 30 years ago. I.e., CPI != inflation in the long run.)
No, it isn't "demonstrably false". It's true by almost every metric.
>For the average middle class worker in the US, however"
Well, if the US middle class were somehow more important than workers elsewhere around the world, this would matter. They aren't, so it doesn't.
If you considered the entire globe, then yes, there are growing middle classes in certain Asian and Latin American countries.
To say that we shouldn't care about the growing wealth gap because the world has smart phones is disingenuous.
2. Since 1950, food prices seem to have grown at the overall rate of inflation, so food is cheaper relative to the median income. (https://research.stlouisfed.org/fred2/series/CPIUFDSL/)
3. Healthcare is usually considered essential, and its cost has increased as a fraction of median income, but I would bet 1950's medicine would be dirt cheap today if it weren't illegal to practice it: no MRIs, no patented medicines, no chemotherapy, etc. What we get in exchange for the higher cost is a decade of life expectancy.
4. Here is an interesting article I found on this topic: http://www.theatlantic.com/business/archive/2012/04/how-amer...
It's not quite clear that the extra decade of life expectancy comes from the more expensive medicine.
(I agree with the rest of your arguments for what it's worth.)
a house cost $22,000 (ie, 5.3x an annual income)
a loaf of bread cost $0.18 (ie, 0.004% of annual income)
Today, a median household income is $51,939 and
a median house costs $188,900 (ie, 3.63x an annual income)
a loaf of bread costs $2.26 (ie, 0.004% of annual income)
Current median income and house prices from Google, loaf of bread cost from http://www.numbeo.com/cost-of-living/country_result.jsp?coun....
All dollars nominal.
EDIT: Here's a fancy chart I just found, thought it might be useful to make the point:
http://www.bls.gov/opub/ted/2000/feb/wk3/art03.htm
Also I'm not sure if it's a typo, but your comparison between "average income" in 1955 and "median household income" today seems to hurt, not help your point.
As for real human needs , like healthcare - it seems to be that with technology ,at some point in time, they will be fully solved, so no need for further growth.
WalMart sells over 5x as much: if Amazon were to scale proportionally it would have 835,000 employees.
(And if we looked only at the non-AWS portion of Amazon I'd imagine the difference would be even smaller)
We should compare by total product sales.
https://news.ycombinator.com/item?id=9945053
has Walmart revenues about 5x Amazon revenues, and your numbers have Walmart employees about 10x Amazon employees.
So a very naive linear extrapolation implies Amazon would have about half the employees of Walmart if their revenues were equal.
Or fewer humans working more hours?
Post-Seattle construction: 224,100
Amazon is building office space for 70,000 workers in downtown Seattle.
Amazon revenue: $89bn.
Amazon is only worth its current market cap if it can increase sales by at least 5x. Which it probably can, but it will take some years.
Wal-Mart is expanding into grocery stores, with their "Neighborhood Markets". (They mean big supermarkets, not convenience stores. Typical size is 45,000 square feet.) Wal-Mart has 40 square miles of floor space worldwide.
Portions like AWS, Digital and 3P/FBA service revenues will have much higher margins than first party retail revenues (which is the most like Wal-mart revenues, except the margins are completely different due to no having brick-and-mortar stores.). Additionally, Amazon is a lot more international than Wal-mart so comparison is even harder.
All of this completely ignore the growth rates of these two companies.
How do you figure? Compare this for Amazon:
Amazon has separate retail websites for United States, United Kingdom & Ireland, France, Canada, Germany, Italy, Spain, the Netherlands, Australia, Brazil, Japan, China, India and Mexico. https://en.wikipedia.org/wiki/Amazon.com
To this for Walmart:
As of January 2014, Walmart's international operations comprised 6,337 stores[1] and 800,000 workers in 26 countries outside the United States. https://en.wikipedia.org/wiki/Walmart
And this map for Walmart: https://en.wikipedia.org/wiki/Walmart#/media/File:WalMart_in...
Diversified into lots of "nice to have" items. In a really bad economic downturn, Amazon would be wiped off the map. People would still be buying bread and milk at Walmart.
Yes, for certain commonly-consumed heavy or bulky goods, i.e. anything that's either mostly air (like toilet paper) or mostly liquid (like detergent) they aren't your best choice. That's not all goods by any means.
Also you're comparing the mileage of a bus (the UPS truck) to a passenger vehicle. The UPS truck is delivering goods for a hundred other people on his run today, the gas spent transporting your package is an absolutely insignificant fraction of that. If you're really worried about ~my carbon emissions~ then you should really be thinking about ditching that car and getting yourself to work on one of those 5 mpg busses.
In fact where I live Tesco recently raised their free-delivery minimum order threshold to try to encourage people to place larger, pre-planned orders.
Most of the stuff that you'd buy at a real-life grocery store doesn't make sense to order shipped from Amazon. Amazon as a replacement for WalMart only makes sense if you can wait a few hours for delivery and live in one of the selected areas for Fresh.
Thats more the market saying that the overhead of having stores, of having staff maintaining them, of maintaining a supply chain to stock them, and all the bureaucracy around that is not worth it. That just having a website and good distribution centers is enough, and Walmart thus has a lot of unnecessary overhead, especially when they have both the stores and their website.
There are still a lot of things Amazon does a poor job supplying, and having to pay $200 a year to get quick shipping is a severe stain on their practical use as a walmart surrogate for many people.
Amazon Prime (two-day shipping) is $99/year[0]. Are you referring to something else?
[0] http://www.amazon.com/gp/product/B00DBYBNEE/ref=gno_joinprml...
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Walmart Net Income: $15bn Amazon Net Income: -$250mn
Despite that huge lead by Walmart in sales (5x), they're only left with about 3.2% of profit. Of course that's better than 0...but the interesting thing is how Amazon's value is predicated on what it can continue to build (as you've alluded).
The market disagrees. The market capitalization is set by what people are willing to buy and sell ownership of the company for. It is not set by the amount of revenue generated.
http://blogs.ft.com/lex-live/2015/07/24/no-amazon-is-not-mor...
WARNING: paywall
1) Zero paternal leave. This may lead to subconscious hiring bias for men b/c you know they can't take paid leave. I'm surprised the S-team permits this, but I think they're all male anyway.
2) No free lunch ever. Facebook and Google both have them. Microsoft has free snacks I think. Several Seattle companies have catering on Friday. The Amazon Silicon Valley office has them only because there would be a revolt if they didn't. (Oh sorry, there's rumor of free ramen noodles on some floor in Blackfoot maybe)
3) On-call for all devs.
I think reddit had a thread series last year showing off what interns got at Microsoft, Google, etc. At Amazon, interns get to keep their backpack when they leave.
If someone asked you if you'd prefer an additional $500 per month or free meals, what would you say? I imagine it'd be at least a toss-up.
On-call and paternal leave aren't great, but again, it's a factor into a job decision.
I guess my tacit assumption is that most people who get dev job offers from Amazon also get job offers from other places (or could if they so chose) because the job market for CS is so good. So if they take the Amazon job, they must think that the lack of niceties is outweighed by either the pay or the work they'll do.
This probably won't be the case for their warehouse workers, who might in many cases have a choice between Amazon and unemployed.
It's implicit. When you weigh up job offers, you look at what the job gives you; the busywork and the compensation. Perks are a clear part of that compensation package; the perks are part of the pay.
Yes, you should absolutely view a company that offers free meals as giving you an extra $amount you spend on food each day, or you should subtract the same amount from a company that doesn't.
2) I approve of this. Have a cafeteria with cheap food, great. But I eat healthy, I don't want my workplace dumping pizza on me every day. Let me make my own food choices ;)
3) As long as total comp reflects it and it is not abused, seems reasonable. i.e. better not be more than 1 3am wakeup per year.
Where I work now (Seattle branch of very famous SV company) you fill your plate up buffet style from a daily rotating selection that includes usually 2 vegetable dishes, 2 starches (usually rice and potatoes), and a few main course options (at least one is always vegetarian, usually vegan).
There is also unlimited free fruit/snacks at all hours. In short it's very easy to get a balanced meal containing whatever amount of each macronutrient you want.
Bonus: the food isn't five star gourmet but it's usually pretty good at least.
Why not give everyone $200 a month and then sell the food for near cost ($4 a meal or whatever)? No matter what you do, some people are not going to consume it.
Their achilles heal though continues to be browsability and searching. It is obviously a great place to go if you know exactly what you want, but continues to be a poor experience if you are browsing for an item or don't know what you want. There continues to be duplicate listings for the same items (some listed by 1st party and some by 3rd party), and it is very tough to browse items. Once they actually figure this out and implement, that's when this will really become game over (at least domestically)
I mean, I bought a coffee table through Amazon a few months ago. After buying the table, for several weeks it kept showing me coffee table recommendations. I would think Amazon would be smart enough to try and sell other living room furniture or things to put atop the coffee table I just bought, rather than trying to sell me more coffee tables.
Every year around burning man time it "notices" that I'm buying supplies for burning man, and starts recommending me things like baby wipes, which are completely unrelated (naively) to things like lag screws, rebar pullers, etc.
Try buying lag screws, rebar pullers, etc. in 6 months and see if it recommends your baby wipes.
Their catalog is getting so bad that I can't even find things when I know exactly what I want.
Not that I take it personally. Amazon went down the path to breaking trust when they came up with Prime. What does it say other than give us money so we won't charge you more. Time, gravity and a slippery slope mean that logic ultimately becomes dominant without heroic efforts of corporate culture. Sponsored ads don't create a culture to help anyone within who might be trying to fight the slide. Hell, Amazon is even in the textbook rental business screwing college students.
The problem for Amazon is that they don't have good locations locked down. Six letter .com domains aren't prime real-estate. All they have is the quality of the sales experience, and the more convoluted shopping for value becomes the better competition looks.
And Ebay, now my first choice long tail shopping stop, has gone the other direction. They've made the experience better and more straight forward and I don't find a $7.42 charge for shipping that should be $2.99 at most at the end of checkout because the shipping is listed right with the item. Or to put it another way, Ebay's business model isn't built around the idea of seeing if it can get away with something.
The problem is when trying to get away with something gets baked into the algorithm, it's hard to take out of the company culture. Unlike Amazon, sometimes I drive past Walmart. I don't accidentally type "amazon" into my browser bar. So Walmart is more likely to get a second chance just due to physical precense. Amazon, has nothing but its name and it is organizing its business model toward download.com. Sucking is not a good long term business model.
I ruthlessly use camelcamelcamel and place items in my cart saved-for-later when I care more about price than speed. Amazon gets maybe a 2% "leeway" for me, because I know I'll get great customer service if something turns up screwy with the order.
I do agree that Ebay has really turned things around for the better starting about 18 months ago, and I find myself ordering a lot of items from Ebay that previously would have come from Amazon or AliExpress, especially inexpensive Chinese-sourced electronics components.
I use the Amazon mobile-app to check reviews or compare prices of local items (it uses phone camera and is very fast), and I use http://camelcamelcamel.com/ to sanity check the items I wanna buy from amazon.
Same here, but I've always wondered if they manipulate reviews. Obviously, crappy reviews on high margin items and good reviews on a different brand of the same item but with low margins are bad for Amazon. I've never seen anything that would lead me to believe they remove reviews but having 100% honest reviews could be hurting their business. I hope to hell and back they never compromise the integrity of their reviews, but I wonder if it's something they've thought about or are currently doing without our knowledge.
To put it another way, if you're shopping the most relevant result for ten listings of X is the one with the lowest price. That's not however what "sort by revlevance" seems to mean.
Five years ago, there wouldn't have been a reason to compare the Amazon price to your local price. Amazon would have been clearly a better deal on everything except how fast you could have it. That was the fundamental proposition, better price for latency. Now the calculus is more complex and Amazon has deliberately chosen to make it so.
That's a joke.
Presumably the ultimate belief in the value is either that Bezos will eventually share some value of the company, or that Bezos will retire or die and it won't be his decision, or that stockholders will force a value-sharing over Bezos' objections (he does not, after all, have a majority).
Someday Amazon will either be out of business or paying a dividend.
Other companies don't aspire to even 50% of market share. See Apple for example. They are happy to have the premium segment locked in and reap the profits out of it.
(from "The Everything Store" Bezzos' biography)
Amazon's Q4/2014 net income was -241,000 and they had a P/E of, well, they didn't.
I think Amazon has been one of the most innovative companies of the last decade, but Amazon is going to be a much less attractive consumer option as they start transitioning to business models that require them to actually profit.
I could steal all the lawn mowing business in town if I were willing to mow lawns for free...
It would be more like if you were mowing lawns at a very small profit and using that profit to continually buy more lawnmowers and trucks and eventually investing in developing my own, more efficient lawn mowing technology. Each summer you lose a little money but after 50 years you now are mowing 50% of the lawns in the US and doing it more efficiently than anyone else is capable of.
Yes, Amazon could be more profitable with different price points, but sales would take a hit, and thus their growth prospects.
FWIW, I think Amazon valuation is fair.
Wonder if that would work in some form...
Sort of. I mean, I'm not a tax expert. but i do pay taxes on a bunch of money that, from my point of view, I re-invested in my business. But certainly not all of it.
My understanding of why you end up paying tax on money you re-invest into the business is depreciation.
The idea behind depreciation is that you write off the object as it loses value. So if computers last 5 years (and that's kinda the messed up part, the IRS kinda arbitrarily decides how long something lasts) I write off 1/5th the first year, 1/5th the second, etc... I still get to write off the full value of those servers I buy, I just can't write it off the first year, which means I end up 're-investing' out of post-tax money when I'm just starting or growing.
As an aside, if you have these sorts of problems, get a tax expert. Accounting is at least as deep as programming, and unit testing in accounting, while possible, is super expensive. It's not something you want to seat-of-the-pants.
When you are an S corp, it's super irritating, because 4/5ths of what I paid for servers is marked as income for me, and I've gotta pay taxes on it, which suucks when you have been scrimping all year to pay for servers.
Note, this is part of the "value" that leasing companies offer; It's common for companies in my business to lease their servers, and you write off your lease payments against income in the same year as you make the lease payments.
But from what I've seen, leasing increases hardware costs between 2x and 4x, and is way less flexible, so even if you have to pay tax on all the money you spend on servers, you're still usually coming out ahead. And buying, generally speaking, requires a lot less planning.
but on the other hand, if I hire someone to write code for me? that comes out right away, pre-tax, no depreciation, assuming I earn the money and spend the money in the same year. - so if I want a new software platform? I get to build it entirely using pre-tax money.
(Note, things get way more complex from here; Accounting is a complex thing and I probably don't have a strong enough grasp even as just a businessperson, much less as an accountant. But this is the basic idea on why re-investment money is sometimes taxed.)
Regarding depreciation, I thought there were a few other factors that keep the IRS from arbitrarily deciding how much something lasts:
1) If you sell it, you get to treat it as having depreciated to that value (assuming arms-length and all), not the scheduled one.
2) If you can demonstrate a liquid market, can't you use that as the current value?
Also, for counting 4/5th of servers as income, isn't that mitigated by how you're really paying taxes on the income used to buy the servers? The point of that was to make it so that you're taxed on changes in the book value of your venture.
So if you make $1000 in profit and immediately spend it all on servers, you still made $1000 in taxable profits and that's what you're being taxed on, which you should count the taxes on before buying more capital goods.
In fact, I'm incorporated in California, none of the "I have a condo in vegas" tax dodges so common among people who do corp-to-corp contract work, and most of my labor is done by people paid as employees, you know, paid on W2s, rather than as contractors. I play by the rules to the best of my ability.
>So if you make $1000 in profit and immediately spend it all on servers, you still made $1000 in taxable profits and that's what you're being taxed on, which you should count the taxes on before buying more capital goods.
Assuming it's a capital good that depreciates to near zero (and it's more complicated than that) the depreciation is written off against revenue as a cost, just like payroll. Unlike payroll, it's not all written off at once.
If you stay in business long enough, then yes, nearly all your capital goods are eventually all written off against your revenue.
The problem is that as a growing company, you have to buy shit out of post-tax money at a time when there's a much bigger chance of you being around next year to pay taxes at all if you can write off the whole cost of your depreciating capital purchase up front.
There are also a bunch of small-business loopholes here where you're allowed to write down the whole value all at once, all of which I don't really understand. As you point out, there are also ways of writing off your stuff on schedules different from the official IRS schedule, which I also don't really understand (and I suspect you don't fully understand either) - It's really, really complicated; the IRS doesn't often give you clear guidelines; when they do, it's usually best to follow those guidelines.
Every time these conversations come up it's always the same thing. One said says profit the other side says to skate where the puck is going.
While both companies have their pitfalls, it's certainly interesting to continue to watch e-commerce's rise.
[1] http://finance.yahoo.com/q/is?s=AMZN+Income+Statement&annual
[2] http://finance.yahoo.com/q/is?s=wmt+Income+Statement&annual
Seriously, guys, all this "Oh, well, I disagree with the valuation of this company" stuff isn't very interesting. We all know that sometimes the market gets the value of companies wrong. Probably if Amazon's next quarter is not very good, its valuation will go back down.
And trying to make a virtue of extremely simple analyses of company valuation is also silly. It's not like you're revealing a deeply held secret that Amazon is very low-margin and often runs a loss. It's not like people don't get that. They've decided that Amazon has other virtues. Maybe they're right and maybe they're wrong, but I'm really confident that looking only at net profit as your sole method of valuation is a losing stock market strategy.
I'm not sure investing only in highly profitable companies would result in a "losing stock market strategy" (assuming "losing" means underperforming the S&P 500). Just looking at the ten most profitable[1] eight of them (all but Chevron and Walmart) are among the most weighted in the S&P 500 (in fact they're the top eight), Apple alone makes up 3.84% of the index. Combined these eight seem to account for about 15% of the index[2][3].
That's only looking at eight highly profitable companies in an index of 500 and it's 15% of the index! I can't imagine a portfolio of the 20 or 30 most profitable underperforming the index considering they would make up such a large part of the index itself. [Though it would be interesting to see historically what the performance would be of such a portfolio].
[1] http://fortune.com/2015/06/11/fortune-500-most-profitable-co...
[2] http://portfolios.morningstar.com/fund/holdings?t=SPY (this is actually looking at the ETF but it's presented better then [3], which is provided to show they don't differ much)
1. Exxon Mobil (2005 price: 61.05, 2015 price: 79.95)
2. Wal-Mart (2005 price: 51.60, 2015 price: 71.58)
3. GM (Went into bankruptcy, I don't really understand what happened to its stockholders, which thank god I was not)
4. Chevron (2005: 61.71, 2015 price: 90.62)
5. Ford (2005: 12.40, 2015: 14.39)
6. ConocoPhillips (2005: 42.38, 2015: 52.08)
7. GE (2005: 36.12, 2015: 25.76)
8. Citigroup (2005: 497.80, 2015: 58.72)
9. AIG (2005: 1317.20, 2015: 63.64)
10. IBM (2005: 94.10, 2015: 159.76)
S&P500: 2005: 1191.17, 2015: 2079.65
A realistic portfolio to prove/disprove your theory that investing in highly profitable companies is a losing strategy would be to take the 25 most profitable companies (I said 20 or 30 so let's just go with the middle) and update it every year.
With only the eight most profitable making up ~15% of the weight a portfolio of 25 is probably going to approach 30%. It's hard to imagine the largest components representing nearly a third of the index weight are going to move completely and drastically divergent to the index as a whole.
[1] http://marketcapitalizations.com/changes-in-sp-500-component...
Today their market cap is $176 billion, in 2005 it averaged around $230 billion or so.
Which, honestly, everyone already knows.
Also what happens tomorrow if you don't have to go anywhere to buy most products, but just fabricate it at home or at the local fab down the road as Neil Gershenfeld predicts.
That's more than 15 years. So far he has been proving them wrong.
Walmart perfected 20th century shopping and are reaping dividends for it in terms of current monetary profits.
Amazon is working on perfecting 21st century shopping. Bezos owns 18% of the company and he plays a long game. He sees what others don't see.
e.g. He was supposedly an idiot for selling books online.
By whom? Everyone I know who first used Amazon back in the 90s thought it was a great idea.
I think it's weird how we've fetishized the idea that "everyone else thought that business plan was crazy except for the visionary founders."
If anything, I'd argue these founders are "geniuses" because they executed better than anyone else at the time, not that everyone else thought the idea was crazy.
Here's a precocious '09 writeup on AMZN from an analyst at Andreeson-Horowitz.[1] He points out how Amazon's re-investing CF's to finance capacity, warehouses, real estate, etc. This is instead of realizing accounting profits.
[1]http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-n...
edit: it's worth pointing out that AMZN could be one of the most profitable companies (accounting profits) at the flick of a switch if it diverted its CF's away from capex and internal investment. Its CF's have been enormous for quite some time.
At the end of January of 2015, Wal Mart's income tax was approaching $8B for the previous 12 months.
Amazon was 161 million.
https://www.stock-analysis-on.net/NYSE/Company/Wal-Mart-Stor...
https://www.stock-analysis-on.net/NASDAQ/Company/Amazoncom-I...
Let me know when they can do that too.
"Amazon posted a surprise second-quarter profit"
http://blogs.wsj.com/moneybeat/2015/07/24/amazon-and-apple-t...
Either a glimpse of a bubble in making or tech truly is the new oil.
In terms of total sales, Wlmt (including subsidiaries) is close to $500B, while Amazon is approaching $100B. However, Wlmt.com (domestic) is only ~2% of total sales times $288B total domestic sales so only ~$5B sales
I think it's unfortunate if it is.
Jeff Bezos holds less than 20% of Amazon now, but he basically "owns" Amazon for all practical purposes. I'd also say that at least 20% of Amazon valuation is based on Bezos being the CEO/President/Chairman of the Board.