

Amazon Has the Most Generous Shareholders in the World - 1337biz
http://www.slate.com/blogs/moneybox/2012/12/12/amazon_s_zero_profit_business_strategy_it_s_amazing_but_someday_we_may_all.html

======
Atropos
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?

~~~
Steko
"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.

~~~
graeme
'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.

~~~
Steko
"routinely mocked in the political blogosphere for commenting on every issue
under the sun"

My impression is the opposite. He's intensely disliked by the firedoglake set
for being insufficiently liberal and by conservatives because they are batshit
crazy and he said something insensitive after Breitbart died.

As far as being mocked I don't think I've seen much outside of his basketball
posts which can indeed be lawlworthy.

------
farnja
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.

------
xyzzy123
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...

~~~
greedo
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.

~~~
jimfl
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.

~~~
cube13
Broadly speaking, there are two ways of increasing your net income(which, at
the end of the day, is what investors care about): Increase your margins by
charging more or spending less, or increasing your revenue by servicing new
markets. In either case, the end result for the investors in the same. In the
first case, they get a bigger piece of the pie. In the second, the pie is
bigger, which means that their percentage is worth more.

Amazon's entire business model is currently focused on growth through new
markets. Here, the idea is that you spend money to make more money in the
future. The problem, from an investment perspective, isn't that Amazon's been
successful at doing that. Their revenue shows that they've been wildly so. The
real problem is that their net income has not been increasing at all
(<http://ycharts.com/companies/AMZN/net_income> ). Since their costs currently
aren't scaling well with revenue, it might become a major issue in the future
for Amazon's investors.

The market has given Bezos 15 years so far, and to his credit, he's done an
outstanding job. Revenue growth has been pretty good for the company, and
they're pretty stable. He's managed expectations better than just about any
CEO out there, since he's completely open about how his plan is to spend money
now to make more money in the future. The market has been fine with that, so
far. But there will be a point where the investors will want their investment
in Amazon to give a decent return. The question is when that's going to
happen, and whether or not Amazon can get all their ducks in a row before it
finally does.

~~~
greedo
I agree with what Bezos has been saying and doing, but the main gist of the
argument against Amazon is that investors seem to be expecting Amazon to bump
prices and margins at some point, completely the opposite of what Bezos has
been saying and doing. Perhaps he means what he says, and simply wants to be
like a grocery store making 1-2% margins. Now when your revenue is $100
billion a year, that's not a lot of meat to justify high P/E ratios. And just
like Apple is experiencing now with having huge revenue rates, eventually your
growth will have to taper off.

------
precisioncoder
<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>

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

------
shirro
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.

~~~
jfb
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.

------
saosebastiao
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
>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.

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

------
jstanderfer
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.

------
cm2012
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.

------
programminggeek
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.

------
msrpotus
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?

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

~~~
dbecker
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.

~~~
Crake
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...](http://www.mcall.com/news/local/amazon/mc-allentown-amazon-
complaints-20110917,0,6503103.story)

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

------
adventured
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.

------
crististm
PR bullshit

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

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

------
neeee
I call submarine on this.

