Amazon is not profitable, for now, because taking over the world costs a lot of money

I’d wondered whether Amazon had no profits because their business was simply expensive and unsustainable at current prices. It seems the answer is “not necessarily”.

Amazon’s business is delivering very rapid revenue growth but not accumulating any surplus cash or profits, because every penny of cash is being ploughed back into expanding the business further. But, this is not because any given business runs permanently at a loss – it is because the profits from what is already there are spent on making new businesses.

…Amazon has perhaps 1% of the US retail market by value. Should it stop entering new categories and markets and instead take profit, and by extension leave those segments and markets for other companies? Or should it keep investing to sweep them into the platform? Jeff Bezos’s view is pretty clear: keep investing, because to take profit out of the business would be to waste the opportunity. He seems very happy to keep seizing new opportunities, creating new businesses, and using every last penny to do it.

…When you buy Amazon stock (the main currency with which Amazon employees are paid, incidentally), you are buying a bet that he can convert a huge portion of all commerce to flow through the Amazon machine. The question to ask isn’t whether Amazon is some profitless ponzi scheme, but whether you believe Bezos can capture the future. That, and how long are you willing to wait?

The full post is interesting. Hat tip to Tyler Cowen.

23 thoughts on “Amazon is not profitable, for now, because taking over the world costs a lot of money

  1. Very interesting article. Can’t remember when Amazon began, but it used to lose about 300M a year on running costs alone, mostly advertising (traditional and in all kinds of websites) so being a very slightly profitable company I guess is almost good news. But yes, I wonder how long the stakeholders will wait.