[curiouslurker]

I will make the bold claim that within 10 years amazon will fall apart at the seams like a cheap suit in a storm. You cannot run a non profit forever no matter how large your market share is or how obsessed you are about customers.

The culture (from what we can glean from the excerpts of the new book on Bezo's) is also toxic and is unlikely to produce an enduring successful company. Senior execs can't pass gas without Bezos' permission? When he steps down, there is unlikely to be the continuity that produces great enduring companies.

[hacknat]

They are hardly a non-profit. He is maybe the most aggressive CEO in the US right now for putting money back into the company.

Amazon's cash flow is insane, if they put the brakes on reinvestment right now, they would be making billions and billions per quarter.

[hncommenter13]

1. I'm not so sure about that. According to the most recent financial statement[1], AMZN hasn't generated much in the way of net cash from operations over the past 12 months. Worse yet, they're spending an amount in excess of that on investments (some of which is really capitalized operating expense, like internal software development, that companies like MSFT expense directly). In fact, for the 12 months ended 6/30/2013, the only reason ending cash was greater than beginning cash was because they undertook financing transactions (selling stock, issuing debt, etc.) See the section that discusses "free cash flow," which is in itself a non-GAAP measure, as it omits non-avoidable expenses like operating lease payments, principal repayments on debt, etc. In other words, even that measure doesn't really represent distributable cash.

2. Unlike SaaS companies that sign multi-year contracts as their main source of revenue, the vast majority of Amazon's revenue is products, for which revenue is recognized almost immediately. Over time, then, the cash the company collects should roughly correspond to its GAAP income, unless services that are paid up-front for consumption over time increase as a % of its revenue (e.g., reserved instances, annual subscription fees, etc). In other words, it is unlikely to profitlessly generate cash; the two should rise or fall together.

3. Amazon is a fearsome competitor. But ORCL makes vastly more money. In fact, when Walmart's revenues were the size Amazon's are today (in the early 80s, roughly, adjusting for inflation), it was far more profitable then than Amazon is today--despite having to operate stores and truck fleets.

[1] http://edgar.sec.gov/Archives/edgar/data/1018724/00011931251...

[hef19898]

There are quite a few companies I know that exist for decades now who are living on a (relativly) low margin and cash flow focus. Most of them are retail discounters. And by coincidence these very companies are eating up market share from other retailers.

The whole eCommerce business of Amazon is very supply chain heavy, and here they are among the best (along companies like Apple and McDonalds).

On the other hand I know more than one company with incredible margins who are bleeding money for years now. And they are not doing well. Agreed, Amazon will be facing the challenge of slower growth. Wether they can pull another strategy and execute on it only time will tell. But untill they hit this point Amazon is in very strong position.

Maybe a little anecdote regarding Wal-Mart. Back the day, Wal-Mart invented things like cross-docking. That basically reduced the inventory levels in their warehouses to zero (well, not quite, but in theory items were no longer stocked but transfered from on truck to another). Things like that made Wal-Mart the giant they used to be. And then Amazon recruited a lot of Wal-Marts supply chain and logistics people when they started to built there own network of fullfillment centers.

Regarding the operation of a private fleet of trucks, well back in the 80s it was quite common. But these days are more or less gone. That was replaced by specialised 3rd and even 4th party logistcs providers.

Regarding point 2: These two metrics (cash flow and profit) and as much related as you think. Imagine you sell a product for 100 on day one. Your customer pays you on day 2. And you pay your supplier 80 for that product on day 30. Perfect from a cash-flow perspective, now you can invest without going to a bank.

Profit is a completely different matter now. Imagine your operating cost is 10, then you are cash-flow positive AND profitable. If your operating cost is 30, then you are still cash-flow positive but you are losing money. In theory, a company can live eternally on a positive cash-flow and zero profit (or very low profit). As long as shareholders buy it, that is.

Excuses for the very simple explanation, but I hope the general point more or less came across.

[hncommenter13]

Point 1. Yes, low margin/cash-generative businesses exist, like grocery stores and well, pretty much all of hardline (and much softline) retail. AMZN has not yet generated much profit or much distributable cash flow, relative to their revenue scale (and normalizing their expense base, for things like leases and capitalized software).

My point regarding Walmart was that, even with many of the historical expenses (like trucks) that they no longer bear, they were still more profitable throughout their history than Amazon has ever been. Why?

Point 2. I don't think we disagree, as I'm referring to the long term, not the short term. In most circumstances, a business can't be both unprofitable and cash-flow positive indefinitely, unless there is something very strange happening with the accounting (like unusual tax losses a la GE Capital).

Profits and free cash flow can and do diverge for short periods in the company's lifecycle, but they ultimately must converge in terms of sign/direction.

[hef19898]

over the whole life cycle of a company, ok. Not on the exact mumbers but wether wether profits and cash flow are positive or negative. Chancea are that in the worst case the short term effects already killed the company in question, though.

Regarding Amazon, they are profitable enough. Cool thimg is they are building the fullfillment centers by the dozens, payed from free cash flow. And thats pretty amazing I think. But you are right, in the long run Amazon will most likly hit a growzh cieling. When they do they will have to changw strategy.

[hacknat]

Umm... What?

The 10-Q you just posted says AMZN pulled in $4 Billion in cash equivalents for the quarter which is almost double what they did the last equivalent quarter. It also says they have $8 billion in the last 6 month period whereas the year before they had $5 billion in the same 6 month period.

My point wasn't that they are making a profit, my point is that they are pumping enormous amounts of money into their own infrastructure. Looks at the capital investments section of the report.

[hncommenter13]

I'm not sure where you're looking. Page 3, Consolidated Statements of Cash Flows. Last 12 months ended 6/30/2013, $4.5B CFO, ($5.8B) CFI, $2.8B CFF. Without issuing debt, their net cash would have decreased.

You are essentially arguing that the investment expenditures will fade over time, leaving Amazon strongly free-cash-flow positive.

I am saying that, at present, the only reason they generate cash is that they issued debt, and that we need to look carefully at the nature of the cash expenditures on investments, as I believe many will likely continue (and that some of them are really recharacterized operating expenses).

The question is whether those investment expenses are truly optional/one-time. Neither of us knows for sure.

[adventured]

You don't seem to actually understand Amazon's business.

First of all, there isn't even a remote threat to their retail empire. Everybody else is a drastically distant joke. They're already the size of Target, and they're still growing rapidly. Nobody stands a chance at catching them. Walmart.com continues to just flail in the wind. That means they're going to end up with a monster position that can't be assaulted in the next decade. A simple extrapolation reveals that in a matter of seconds. Just toss a mere 5 years onto their growth and they'll do nothing but pad their crazy lead over the competition.

They paid off billions in debt post dotcom bubble. How do you suppose they dug themselves out of that hole without generating tons of cash?

Where'd they get the $11.3b in cash they ended fiscal '12 with? How'd they pay for all those warehouses?

Answer: they produce plenty of cash courtesy of a very healthy business model

[kken]

>First of all, there isn't even a remote threat to their retail empire.

How about Alibaba? They already have more revenue than Amazon and eBay combined.

[saosebastiao]

That's not a bold claim...hundreds of pundits have said exactly the same thing. Not only do you not have a reputation to maintain, but you have chosen a completely conspicuous comment section to make the claim, ensuring that nobody cares enough to track down your comment 10 years from now.

Funnily enough, there is one Exec whose 40 year strategy is almost identical despite radically different markets and tactics...namely the "reinvest until you are blue in the face" strategy. You may have heard of him, his name is Warren Buffet. Bezos has the advantage that with his company, he doesn't have to realize any profits.