Jeff Bezos to Wall Street in 2005 after the stock had fallen more than 40 percent for the year.
As David Streitfeld notes for NYT:
That was bad advice. The stock is up almost 700 percent since then, hitting a record this month.
Brilliant, as always.
Mark Gimein for Bloomberg:
Comparing Bezos’s fortune to Amazon’s earnings highlights how deeply puzzling that increase has been. Since 2003, the first year in which Amazon earned a profit, through the end of 2011, Amazon has reported a total of $5 billion in earnings. Amazon has not yet reported results for this year; it lost money in the last quarter, but is expected to turn a profit for the year.
Think of it this way: if Bezos had started the company himself, still owned all of it, and had taken out every penny in profit, his bank balance would be less than one-quarter of what his shares are worth. Or think of it another way: Apple’s profit for the last quarter alone is well over twice Amazon’s profit over its entire entire existence.
It’s crazy, but Amazon appears to be “gaming” Wall Street by not being extremely profitable. There really is nowhere to go but up. The sky is still the limit. As opposed to Apple, which has earned more money in the past year than any company ever save one: Exxon. If the sky is the limit, they’re almost in outer space.
Jeff Bezos on Google, as recalled by a former Amazon executive to Reuters.
Adam Lashinsky for Fortune:
Then, around 2007, Amazon’s investments began to bear fruit, and investors were delighted. The stock is up 10-fold in the past six years. “We believe in the long term, but the long term also has to come,” says Bezos, explaining that periodically Amazon wants to “check in” with its ability to make money. Thus, in 2007, Amazon more than doubled its profit, to $476 million, on a 38% increase in sales to almost $15 billion.
This one paragraph is perhaps the best way to understand Amazon’s endgame. They’re laying the foundation to make money, but only do so right now to prove the model and then go right back to building.
But 2007 was five years ago. It’s a very different world and Amazon is attempting to play many different games. I think we’ll have to see if the profit switch will be as easy to flick sooner rather than later.
Fascinating interview with Jeff Bezos. On the topic of losing money on the Kindles, he notes:
We don’t disclose the exact bill and materials, so I can’t answer that. But we don’t want to lose a lot of money on the device because then we’d really hate it if you put it in the desk drawer. On the other hand, if you make a lot of money on the device, I believe you haven’t earned your money on it yet, and then you’ve incentivized them (the customers) to stay on the upgrade treadmill that I mentioned today.
Translation: we are making some money, but not a lot. (Though it’s not clear the Kindle eReader vs. Kindle Fire breakdown there.)
And on the topic of the $499 cost of Kindle Fire HD subsidizing the data plan, Bezos:
I’m not going to break out the economics of any particular piece with you, but you’re right, it’s an astonishing price point.
Translation: Likely yes.
“In other words, don’t mind the markets, once they see the long-term value we’re building, our stock price will come around. He noted that we almost never as good or bad as our stock price might indicate. Since the only metrics he focused on presenting to the company were those about our underlying fundamentals, he taught so many young people a first and important lesson about focusing on what mattered, what we could control, which was the customer experience.”
The weirdest thing about Amazon getting into high fashion is this, as reported by Stephanie Clifford:
Amazon’s decision to go after high fashion is about plain economics. Because Amazon’s costs are about the same whether it is shipping a $10 book or a $1,000 skirt, “gross profit dollars per unit will be much higher on a fashion item,” Mr. Bezos said, and it already makes money on fashion.
That’s the opposite of Amazon’s model for everything else. All we hear about is how Amazon doesn’t care about profit margins — all they care about is revenue and getting to a Walmart-like scale where profit margins actually don’t matter. But this is Jeff Bezos directly contradicting that line of thinking. He’s touting the margin of this business.
Maybe Amazon is tired and/or a bit worried after watching their profit plunge quarter to quarter, even as revenues rise. That’s what trying to break into the hardware business will do. Maybe this is a way to offset those losses.
Or maybe this is part of Amazon’s plan to sell everything. It does seem likely that there’s no way they could sell designer fashion the way they sell other things (at a deep discount), no designer/brand would go for that. So this is the only way to break into the market.
But again, the article directly states that Amazon’s decision here is about “plain economics” and the Bezos’ direct quote also suggests that.
So much for the Walmart plan. I guess Amazon will now try to be both a high margin and low margin business? Next up: a core focus on razor blades, ink cartridges, and mixed drinks.