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Comment by bequanna | Hacker News Reader

>but the even more tragic part is, they didn't earn any money themselves.

I don't really follow your logic. The point isn't to 'earn money' now. It is to build the economies of scale, over time, so that no one else can hope to compete with them on price in the future. That is when the money will really be earned.

As for Amazon not being profitable, it is a illusion. From what I understand, they have pretty high plowback. If mgmt observes great opportunities for investment, shouldn't they do that instead of paying out dividends?

>My experience tells me which is no brainer, death (exit) of such a company is only matter of time, and when such a vendor dies, rest of the market lives on as they were living before this episode.

Maybe if they were competing on price alone for a single product. This isn't one CRM product vs another. They are competitive on EVERY product. Few online retailers can compete with them on pricing/shipping/experience.

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> I don't really follow your logic. The point isn't to 'earn money' now. It is to build the economies of scale, over time, so that no one else can hope to compete with them on price in the future. That is when the money will really be earned.

Amazon has had this mythical idiom of "when the market want us to give them profits, we will turn on the spigots". In other words, they can just scale back their future investments, and the money will start rolling in.

However, they have been running losses in general for 20 years. For a few quarters in their history, they made some small profits, but in general, even with all the dramatic scaling and efficiencies, they still regularly run losses. Investors have stuck with them for this long, but unless they really can start raking in the profits, I don't see how their stock can sustain such a high price.

If you look at the financials and business model, Amazon is basically the Walmart of the internet. They are in a low margin business, with high capital costs. However, their stock is still priced as if they are a software company with high gross margins (ie software costs zero to produce each additional copy). Walmart understands the model and is able to produce nice profits, and Amazon either has to follow or hopefully the market will finally figure them out and price them accordingly.

Where is this "Amazon is unprofitable" thing coming from? I went onto google finance, and it looks like they've had profits for 3 out of the 4 years of data that they have. Maybe not enough to justify the stock price, but they're making money.

http://finance.yahoo.com/q/is?s=AMZN+Income+Statement&annual

  Year  Revenue  Net Profit  %
  ---------------------------------
  2013  $74B     $275MM      0.3%
  2012  $61B     $-39MM      -0.6%
  2011  $48B     $631MM      1.3%

Their best return was a 1.3% profit, back in 2011.

The numbers provided by Yahoo are in kilo-dollars, so its actually $631 million (and 5000 Bay Area engineers) rather than $631 thousand. Yes, the margins are low, which may be an argument that they are overvalued, but in absolute terms they are profitable.

Thanks, fixed. 0.3% is hardly a profit. Anyone can make more money holding CD's.

Well now we're just quibbling over the semantics of what constitute "real" profit. It probably would be better to just argue that the profits that they do have do not constitute a good investment, which is a valid point of view.

That's not how profit margins work. Their revenue is not capital, and the net is not an interest they could potentially earn on revenue. You're thinking of something more like a cap ratio here. The numerator is profit but the denominator is capital invested, not revenue.

> Walmart understands the model and is able to produce nice profits, and Amazon either has to follow or hopefully the market will finally figure them out and price them accordingly.

Apples and oranges. Check AMZN revenue growth in the past 5 years vs. WMT. WMT is (somewhat) mature, AMZN doubles revenue roughly every 2.5 years.

Why show a profit if you don't have to? Management is obviously finding pretty good, revenue-growing investments.

Amazon is mature as well; maybe not as mature, but 20 years is an old company. And Walmart has been making profits for decades, while their revenue has grown dramatically, and while they have been building extremely expensive stores and warehouses and supply chains.

> Why show a profit if you don't have to? Management is obviously finding pretty good, revenue-growing investments.

This is the nonsensical mentality that has blown up Amazon's stock price for more than the past decade. In the short term, absolutely, ramp up revenue and take losses getting there. In the long run, businesses exist to make the shareholders money.

Actual age in years is not particularly relevant in terms of maturity. Maturity, in this thread, has been used in terms of revenue growth. Amazon's revenue grew 20% over the last year, while Wal Mart's grew 1.6%. Its still valid to say that Amazon is in growth mode.

>but 20 years is an old company

Umm, Google is a ~16 year old company. In 4 years, will they be an 'old company'? Please...

>This is the nonsensical mentality

This is how huge, borderline monopoly business are built. I am not sure you grasp their strategy. It sounds like you may be more comfortable investing in a stable, dividend paying, old line business that you understand.

Google made more profits last year than Amazon has made in its history. They have scaled well and are in a high margin business, and Amazon is not. It's just that simple.

>That is when the money will really be earned.

That time is never going to come, others are not sitting idly either. :) - since I am not american I don't know the precise terms to define such situation. But as we would say 'more clients, more profits' but in the end, you start losing customers, when you charge even pennies more, and you become a victim of your own.

>They are competitive on EVERY product

This is the misconception, they are not being competitive at all. :) they are only being arsehole :) as I would call such competitor in my own industry.

Being competitive means, they quote prices which has profit, however they blow away the competition by virtue of either their skills or costs.

>But as we would say 'more clients, more profits' but in the end, you start losing customers, when you charge even pennies more, and you become a victim of your own.

Huh? The whole point is that they won't have to raise prices, the future will yield infrastructure cost savings. Competitors will have higher costs vs Amazon. So, they can charge LESS and make MORE than their competitors. Seems like a pretty simple strategy; foregoing profit now for increased competitiveness later.

>This is the misconception, they are not being competitive at all. :) they are only being arsehole :)

How so? If their business practices make you upset, I suppose that is understandable. But your comment just sounds like sour grapes...

>infrastructure

To run an ecommerce business, you need IT, Warehousing, Logistics, (funding obviously just like any other biz) If you can generate tons of turnovers, vendors will lay down before you. What sort of infrastructure you were referring to., which other can not save on?

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