Bezos is no idiot. In fact, I believe he’s masterful in his handling of Wall Street. You can play the ever-growing profit game, but unless you’re Apple, you will undoubtedly fall victim to the law of large numbers sooner or later. Then good luck recovering your stock from stagnation.
Or you can plow your profits back into initiatives that continue growth. And if you have the right type of business, which Amazon does, you can live off the cash flow. As a result, you don’t really need profits to operate, but few people realize this. So, again, they demand to see them from time to time.
And, again, Bezos is happy to show them from time to time. But it’s more for show than anything else. Yes, Amazon can turn a profit if it chooses to. And don’t you forget it! (At least for a few more quarters until you do once again.)
Profits aren’t necessary to operate but they’re ultimately why you’re in business. Is Bezo’s being a genius or arrogant? Do you let the cash flow determine how much money you invest into new initiatives or does the merit of the initiative drive what you invest in?
The question you have to ask yourself when evaluating Amazon is are they investing in initiatives that continue their growth or could they have spent the money better else where?
Amazon has plenty of examples of flops.
Amazon believes it can do it all. As much ink that has been spilled on Apple and their arrogance, Apple stays relatively focused and does not appear to think they could or should do it all. Apple sells phones, tablets and computers. They do a lot of other stuff but all of the other efforts are around making sure they sell a bunch of phones, tablets and computers.
Apple invests in what they think will return a large bang for their buck. If they don’t see anything obvious to invest in that utilizes what they specialize in, they hoard the cash. Eventually they give it back to the shareholders or buy back their own shares.
Amazon attempts to invest all the money they have back into initiatives that aren’t necessarily towards moving their main focus forward, which is “Sell a bunch of shit online”. They make hardware, they sell hosting services, they make original TV programming, they make games, yet none of these appear to have a measurable impact on the amount of goods they sell through the store, their cash cow.
I like that Amazon is investing in the future and thinking about the long-term versus appeasing Wall Street with short-term profits. I question how they are investing that money and the general lack of focus and specialization.
Disclaimer – I own a couple of shares of $AMZN and do not currently plan to sell.
