I'd be much more bullish on Amazon as an investor if they gave any guidance as to when they will actually start taking profits. There's just something that feels wrong investing in a company that very well may never become profitable in my lifetime and whose share price will just float on hope for a day that will never come.
I still think Amazon is an amazing company, but their approach to providing shareholder value (the role of a public corporation) is definitely a little unorthodox.
> Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers.
The main theory is that Amazon is building up such a wide economic moat that consumers are going to be willing to put up with higher prices or competitors will still never be able to beat them on margins even when they start to take profits. This is a pretty huge bet.
S3 launched 7 years ago at $0.15/GB. It's now $0.095/GB, down about a third. The cost of storage per gigabyte went down dramatically more than that during that time.
Clearly Bezos believes it's far more valuable here and now to invest into winning market segments like AWS or digital content (eg streaming vs Netflix) or competing in tablets.
With $61b in sales for fiscal 2012, I don't think it would be surprising if they could generate $3 or $4 billion in profit on that basis, with a strict focus on that. They're obviously never going to be a profit machine however, not without Walmart-like scale.
The numbers don't look good for future returns off of the $116 billion market cap. If you assume they have a great decade and reach $150 billion in sales, with 5% margins, that's $7.5 billion in profit - they'd be fairly valued today on a profit projection seven years out. Shareholders can expect exceptionally low returns on average over the coming years.
I find it amazing that people have the patience to wait for AMZN to generate profits when a company like AAPL is sitting there generating more profit in a single quarter than all of Amazon's historical profit combined. What good is having the last laugh if you are already dead? Just how discounted are future cash flows that have no known realization date? You really can't trust the market to be more patient than you are, there is nothing keeping the stock up other than buyers being more patient for profits than sellers.
I mean, I get it from a CEO perspective, Bezos enjoys having his company eat up entire markets, best his competitors, and have millions of happy customers, and he's already rich. I'm just talking about the value proposition for investors.
From the same source, I've heard that some services Amazon.com relies on runs on competitors' infrastructure, even though AWS offers the same service, and no, not as a backup service but as the primary solution for that particular service.
Amazon has historically taken their competitors to the cleaners on margins, especially the dead tree publishers.