Nobody is challenging Amazon because their Earnings Per Share are...
-0.20. Negative 0.20.
Investors lump AMZN with GOOG and the like but GOOG's EPS is 33.59. TGT? 4.26. Walmart is 5.07.
No other company with a market cap (100+Bn) as large as AMZN is allowed to get away with that. The only one that comes close is Vodafone, with a tiny positive EPS (0.13).
It's important to note that if any other company spent until their EPS was negative, investors would flip.
Amazon is playing with razor thin margins while trying to scale up a platform to end all platoforms that we might someday use for everything without thinking about it. On that day/year/eon dollar bills might as well be printed with Jeff Bezos' face on them.
Amazon won't be using UPS and Fedex trucks on that day. They'll be using Amazon trucks. You'll know that era when you see it, I think.
If you're Walmart or Target its hard to justify it at this point, the stock could take a major dive from such a risk. They're at the "Ask-questions" phase, and the questions are always "What's the profit?" because these are publicly traded companies. Amazon has been playing it risky since the get-go.
Bezos is in for a very long gamble, and that frustrates the hell out of some investors, but its lofty enough to still attract investment dollars while in the "build-first" stage. Hopefully they can pull it off for a few more years before the stock market shifts to "Ask-questions."
So that's why. Amazon is doing something bold that would cause the mother of all stock dives in any other 100+Bn company. They get a free pass because Bezos is convincing and for Amazon its sort-of-always-been-this-way. Walmart/Target/Etc do not have either of those luxuries - the incredible (or believable) visionary and being a company that's still in burn (build) mode.
When I first heard that, it just blew my mind. I think that's the philosophy that keeps Amazon moving upwards. At so many points in Amazon's history you can imagine the story ending, but 5 years later it turns out to have been just the beginning, just the introduction.
Successfully starting a bookstore wasn't the end, it was day1 for a music store. The music store wasn't the end, it was day1 for a retail store. Retail was day1 for digital downloads. Downloads were day1 for Kindle. Prime, AWS, India, Android, Same day delivery, groceries...
When you tell yourself the story of your business, you probably start with the idea, go through the struggle, and end with your current success. Bezos puts all of that in the first paragraph, and then tries to imagine the rest of the book.
Just curious but has there ever been a day one where Amazon had to step backwards or some idea failed? It's hard to believe that everything Amazon touches is gold and I personally feel like we learn more from our failures than our successes. Just wondering if you know any Amazon failures from the past?
There's been a lot. Amazon generally avoids press, but they launch stuff that fails all the time. I'd say only 1/3 things they launch (or get really close to launching internally) is actually successful. Since they avoid press, people don't hear about things that fail. Their success rate has been higher with some AWS services, but if you could see their track record internally (basically things that make it to beta) vs. success 5 years later, it's probably under 30%.
However, my next question is: What can we do to make more companies be like Amazon?
Not every business needs to operate on razor thin margins, but I'd love to see more big companies playing the long game and continuously innovating. Wall Street invests in returns, not innovation. What can be done to help reset that balance a bit?
Do we really want other companies to be like Amazon? If the Amazon endgame is "own the entire retail sector," I'm not sure that we ("we" meaning "society at large", not just "Amazon shareholders") want any company to be like Amazon... even Amazon.
Not to mention that when the endgame is "own the entire retail sector," even if other companies want to be like Amazon, in the end they'd have to kill Amazon to do it. Owning the entire retail sector is incompatible with the existence of lots of thriving alternatives. It's like the Highlander -- there can be only one.
And, don't forget the rather nasty consequences of Amazon's ability to operate on no margins: it kills all their competitors who have to actually profit to stay alive. When Amazon moves into your market, your company is probably in big trouble. Really, thats good in the very short term (lower prices for consumers), but bad in the long term (because once amazon controls everything, theres no reason to keep their margins so low).
i think we're forgetting the bad side of amazon. these few article were just brought to my attention recently, which has given me pause on where i shop, etc. i have not stopped using amazon, but i'm def more aware and hope they treat employees better.
my gf is the one who has been telling me about amazon and their labor practices. she tells me about jeff not giving back to the community (she is from seattle), tax issues, labor issues. i'm not educated on the whole ordeeal but she has def sparked my interest. does anyone have any feedback? is amazon different from any other warehouse job?
i used to work at UPS and a document storage company a while back and i don't remember it being terrible on either accounts.
Maybe willing to invest small percentage of one's pension in companies that try this kind of innovations. For example investing in disruptive healthcare companies, with an understanding that it help you when you grow old. Maybe even tie this with some sort of voting power to us, and less to fund managers.
And of course encourage changes towards long term investment, maybe using the tax code.
Well, to be fair, they have turned a profit far more often than not. They lost money in Q3 2013 (and in 2013 over all). But Q4 2013, and Q1 2014 have since been profitable for them. Also their expenditures seem to be paying off, as they had a 27.1% growth in revenue 2012 to 2013, and predict the same level in 2014.
You are pointing out that for the most part investors function as a collective with demands for industry 'normal profits' that essentially make the entire marketplace act as though shareholders are a single collective owner.
Amazon just happens to be the only company which the investor collective allows to actually compete, something which otherwise doesn't happen unless a company is at risk of failing.
If by 'charity' you mean the only efficient company on Wall Street. If things are properly efficient profit will be near 0. Large profits mean that competition has failed.
This sort of econ101 argument that MR=MC in a fully competitive market forgets that such a simple model also must allow for consumer surplus to equal supplier surplus, and that they must necessarily also be zero. In that case, all transactions have zero net benefit for all parties involved, and you might as well not have any transactions.
What he probably means to say that the market is efficient (which the retail sector is). Margins are razor-thin in the retail business because competition pushes profits to zero.
There are more companies like Amazon, but they don't exist online. Amazon is Walmart, Costco, CVS, and Target. (You could also compare them to Home Depot, Meijer, Kroger, etc.)
There are two traditional paths to success in business--high volume/low margin or low volume/high margin (Timex vs. Rolex). Walmart is the classic high volume/low margin company. They started as a five-and-dime. Over the years they used their growing market power to add more product lines until they became a one-stop shop for everything. Amazon has followed Walmart's playbook almost from the beginning. While other early competitors were passionate about books, Amazon was passionate about warehouses and operations. The same thing happened when Amazon moved into music, electronics, and everything else. They could operate faster and cheaper than the other guys.
There are two reasons why there isn't another Amazon in the online world. First, geography meant that Walmart, Target, and Costco didn't directly compete in every place from the very start. They had time to develop and fortify an operational base and then expand. Companies like buy.com had to immediately challenge amazon in order to survive. Second, technology companies don't generally focus on the low margin/high volume path. Online companies are generally populated by folks from the tech industry who look to Microsoft and Apple as their models for operating a company.
Uhh try going to a VC to raise money with the Jeff Bezos story today:
"We're going to lose money for five years and then operate at absurdly low margins for eternity".
Look, Amazon may win in the long run, but asking why more companies aren't like amazon is like asking why every company isn't Apple. We can't all be outliers.
Investors don't have a problem with long term strategies. They have a problem with strategies that involve losing money consistently or making no profits for many years, in the hope that you can magically start making obscene profits sometime in the distant future. Most companies that practice this kind of long term strategy end up going bankrupt before the profits materialise, so it makes sense for investors to be wary of them. Warren Buffett is a long term investor, and even he would not touch Amazon's stock with a 10 foot pole.
But Amazon is not "Most companies". Amazon has done a brilliant job so far, and has changed from a bookstore to a cloud-provider, mega store, content generator and ad network (and probably many things more); utilizing the medium "internet" in a way most companies can only dream of.
In my opinion, like i said, Amazon has a very unique POV on long-term strategies and it collides with people (or stock markets) expectations on making a lot of money in a short time.
There should be a name for articles whose body adds (virtually) nothing to the title itself. That is not to say that the title is not worthwhile - but you can save yourself the trouble of reading as long as you got the title :)
The companies that remind me most of Amazon are General Electric and Honda.
Amazon started with a single complex offering (centralized eCommerce) and from that they famously abstracted and platformized everything about their business: they decentralized their marketplace, they dogfooded their web services to the point that they were able to actually sell their web services, they relentlessly keep decoupling their core.
Honda, and General Electric, too started out with pretty simple value propositions. Honda started by selling piston rings to Toyota, and from there started manufacturing car part after car part until they had enough to create the cars themselves. (And it turned out that when you can manufacture a car yourself from start to finish, you can manufacture a lot of other stuff with the same goods, from drills to radios).
On the other end of the spectrum, General Electric expanded by maintaining otherwise orthogonal SBUs and becoming one of the first companies in the 20th century to really take advantage of cross-branding, figuring out that if a customer liked their lightbulb they'd be okay with using the same company to buy a handheld radio.
(Incidentally, both GE and Honda also profited tremendously from WWII. I hope no tech company happens to profit tremendously from a WWIII, mainly because I hope there is no WWIII.)
It actually reminds me a lot of Richard Branson's Virgin group. Started in the recording industry, then compulsively reinvested profits to get into airlines, hotels, cell phones, retail, spaceflight, and various other industries. And like Amazon, Virgin tends to hold investors by the balls, bleeding them dry to finance risky new ventures by the force of Branson's personality.
Why is it apparently considered hip nowadays to style a few simple paragraphs in font-size 5000%? If you're non-blind this is useless at best, and if you zoom by default, it's unusably large.
Isn't GE doing it to something extent? They're so diversified and so far away from the light bulb business that they originated from. Also, universal banks have diversified product offerings.
The article poorly assumes that every company has talent and capital to take on the risk of entering new markets all the time. It's easy to say "we should've done this and that" in hindsight of success but there are numerous failures of companies that tried to enter new markets and failed.
Amazon needs to start focusing more on the international market. Mark Meeker's 2013 internet trends showed that while 8 out of the top 10 internet properites are owned by american companies, 81% of the internet traffic going to these sights is international (Slide 6 of Mary Meeker's Internet Trends: http://www.kpcb.com/insights/2013-internet-trends). Even though Amazon had been around since the 1990's, Alibab's gross merchandise volume surpassed in the 2011-2012 time frame(Slide 69 of Mary Meeker's Internet Trends: http://www.kpcb.com/insights/2013-internet-trends). The emerging markets such as China and India, as well as the Next 11 countries (Research paper by Jim O'Niel: http://www.goldmansachs.com/our-thinking/archive/archive-pdf...) is where Amazon needs to be focusing their efforts if they want to stay competitive in the next decade.
tnuc, they definitely did just start there, I remember the HN post yesterday which was covering it! It's going to be interesting to see how they change their buisness model to better fit the Indian and South-east asian culture.
I'm not sure that Amazon is an outlier, but rather that as you say, other companies fear they would get raided if they tried to reinvest all their profits (what most companies probably ought to do a lot more of IMO) instead of issuing them as dividends and/or taking the money off-shore.
Given that Jeff Bezos cut his teeth at D.E. Shaw, I'll bet he went into this with his eyes wide open as opposed to the usual lucky and wet behind the ears ivy-league hipster willing to sign away 90+% of his/her idea's net worth from the get-go just to get a shot to pursue it.
Jeff Bezos was the right guy in the right place at the right time. That doesn't mean Amazon can't be taken out, it just means that someone needs to enter the space with a background capable of competing with him rather than creating another pets.com.
Why would any company want to be like Amazon!? They steal and do not protect the sellers. You can file an A-Z claim on anything that didn't have signature required and get your money back. Call their support and they cannot help you in any way. They buy there products from 3rd party sellers at net-60 terms and then return the merchandise that didn't sell back to you at your expense. They steal money from 3rd party merchants, when a buyer makes a claim they take directly from the seller instead of investigating the issue. What company would still be in business if they did all of this?
Either you compete with them by lowering your prices to match (in which case you're almost making no profit, and probably a loss), or everyone ignores you and buys from Amazon.
The post doesn't mean why aren't there more ecommerce giants, but rather why don't more big companies aggressively reinvest their income into growth and to enter new markets rather than hoard cash just to satisfy stockholders.
Nobody has yet pointed out that the specific example cited in the article, online grocery delivery, is a reaction to Google entering one of their core businesses with same-day delivery?
I don't buy the counter examples of Microsoft, Google, and Apple. All three of those have a history of entering new markets with large upfront expenses and turning them into successful businesses. What exactly is the difference between delivering groceries and creating the Xbox, Android, or the iPhone?
The main difference is the margin. IPhones sell, reportedly, at a 58% margin. The profit margin on Windows has, in the past, sometimes exceeded 90%.
Amazon is retail. They make 12% margins in a good year. Which is one big reason why Amazon will put significant effort into a new market with a 25% margin, that the others would turn up their noses at.
That comment "Nobody is challenging Amazon in e-commerce. Nobody." is highly inaccurate. Every major company already does deal in e-commerce. Amazon may do it best, but it doesn't mean they are not being challenged. Many companies are doing pretty well in e-commerce. Their expansion into grocery home delivery has been snail paced at best. It is like raving about Google Fiber when it will not be available for most of the country for a very long time.
More companies aren't like Amazon because they want to make a profit. Amazon operates at cutthroat margins, as if it were still a startup sacrificing profitability to grab market share. Once most companies own a solid chunk of the market, their concern shifts from outcompeting everyone else on price to outcompeting everyone else in other areas and fattening their margins in the process.
Amazon is the outlier because Bezos is still in charge, and he's playing the long, long game.
-0.20. Negative 0.20.
Investors lump AMZN with GOOG and the like but GOOG's EPS is 33.59. TGT? 4.26. Walmart is 5.07.
No other company with a market cap (100+Bn) as large as AMZN is allowed to get away with that. The only one that comes close is Vodafone, with a tiny positive EPS (0.13).
It's important to note that if any other company spent until their EPS was negative, investors would flip.
Amazon is playing with razor thin margins while trying to scale up a platform to end all platoforms that we might someday use for everything without thinking about it. On that day/year/eon dollar bills might as well be printed with Jeff Bezos' face on them.
Amazon won't be using UPS and Fedex trucks on that day. They'll be using Amazon trucks. You'll know that era when you see it, I think.
If you're Walmart or Target its hard to justify it at this point, the stock could take a major dive from such a risk. They're at the "Ask-questions" phase, and the questions are always "What's the profit?" because these are publicly traded companies. Amazon has been playing it risky since the get-go.
Bezos is in for a very long gamble, and that frustrates the hell out of some investors, but its lofty enough to still attract investment dollars while in the "build-first" stage. Hopefully they can pull it off for a few more years before the stock market shifts to "Ask-questions."
So that's why. Amazon is doing something bold that would cause the mother of all stock dives in any other 100+Bn company. They get a free pass because Bezos is convincing and for Amazon its sort-of-always-been-this-way. Walmart/Target/Etc do not have either of those luxuries - the incredible (or believable) visionary and being a company that's still in burn (build) mode.