Frankly I'm surprised this hasn't happened sooner. So much money is sloshing through Amazon these days, keeping it balanced to the point where you don't let it accumulate (generating profit) or flow to fast (generating loss) has got to be scary complex. At every large company I've worked at there are things on the balance sheet that are "tunable" by management which helps with this. It was a running joke inside Network Appliance that we always beat expectations by $.01 cent per share. Of course until you didn't and that usually meant that what ever mechanisms you used for tuning your cash flow didn't have enough dynamic range to cover the change that quarter.
Amazon then, being a services, merchandising, payment processor conglomeration then has to be crazy hard to manage cashflow in any meaningful way.
Bezos is in it for the long haul. He's probably the most impressive business person there is right now. Buffett and Musk are impressive in different ways.
I think that is shafting Bezos short. His company has built a vast logistics empire. Imagine maintaining millions of product categories, keeping their price up to date, sycing all of that through vendors, suppliers, and finally delivering it to the customer. Not to mention, this happens across multiple countries. That isn't a small feat.
I am not even touching on the foresight of AWS or his stewardship of the company in general. I think he deserves far more credit than you are giving him.
Its childish to compare rich and successful people like that. There had been and will be in future more rich and successful people measured by revenue, profit, employees, product reach etc.
This sort of comparison is a silly thing, a hero worship kind of behaviour un-characteristic of HN.
However people still want something to compare. How about instead of just being capital etc add some other measures like business risk, turning around from absolute failure, fighting david and goliath in same industry, building something that was just given up by all etc . Again these measures are subjective and there could be somebody else who may like building a steady growth or being more charitable and equitable etc.
We like to see the world and measure it up in the way its important to us. When somebody says X is the greatest person, then realise that he is measuring with the qualities he finds important.
My gut instinct was to agree with you, but with consideration pbreit is correct in my opinion.
Musk is more innovative in areas that matter for meaningful human progress (SpaceX as opposed to Wal-Mart 2.0), but I believe as far as "business" is concerned Bezos is on top right now.
They have different priorities. Personally I'm a Musk fanboy.
Total: 34,000 as they stand today which is a very generous measure since it's years after Musk left PayPal and he doesn't even work at Solar City afaik.
Amazon has ~222,000 employees, roughly 8x larger than all of those companies combined, not even counting Blue Origin, WaPo, or w/e else Bezos owns, and they did $107,000,000,000 revenue last year, slightly more than all of Musk's companies' combined value.
Employee count should get some heavy value since the real benefit to society from most companies comes from payouts to the rest of the economy via payroll and stock.
Unless we're enabling larger ecosystems around what they've done that creates even more. So far I'm seeing very little in terms of ecosystem around Musk's companies. On the contrary, he seems more focussed on doing exactly the opposite (like Tesla's focus on going around local car dealers).
That's kind of a 0-sum outlook on the role of businesses in society (gather wealth to distribute to employees). Most of the businesses we're talking about are benefiting society not through job creation but through technology creation. Google is not important because they employ tens of thousands of engineers, they're important because Search benefits general knowledge and decision making of everyone with an internet connection. Likewise Amazon, Tesla, SpaceX are pushing humanity forward through invention.
Much technology creation results in a surrounding ecosystem.
Google search enables the people and ideas that are found on the other end of it. People pay for ads to help their businesses to be found which provides value for them and helps those other business to create jobs as well as profits to investors.
Amazon also enables the people selling good through it. AWS enables a lot of people via technology and resulted in an entire ecosystem around what it does.
Tesla is making electric cars, which is great. They're employing fewer people and doing very little in the way of surrounding ecosystem. The closest thing happening there is the Powerwall home batteries that create some opportunities for electricians. They did open up the specs for batteries though and that definitely could create some type of ecosystem, but that remains to be seen.
SpaceX won't be creating an ecosystem anytime soon. Maybe one day and it's certainly worthwhile R&D but the value to society is harder to find.
I'm sure it will happen eventually, but where things stand now Bezos stands as much more accomplished.
It is not possible to be making things that nobody can afford to buy. This is because consuming or otherwise using something that already exists has no real cost. This is Say's Law ( https://en.wikipedia.org/wiki/Say's_law ).
And Henry Ford paid his workers a high wage because he tried a low wage and had massive, business-crippling problems with employee turnover. Working on an assembly line is hell. One minute of analysis will show that it can never be more profitable to a company to sell product to its own paid workers than to just not make the product in the first place.
Most of Amazon's employees are firmly in the race-to-the-bottom category, stock pickers barely making minimum wage on zero hours contracts. It's not something to be especially proud of
IDK, employee count seems like a red herring. To me it's much more impressive to do a lot with a small number of employees (like WhatsApp's 18M users/engineer [0]). Amazon incredibly impressive, I just mark the high employee count as a point against them rather than in their favor.
There's some notes about how Whatsapp achieved that here [1], they attribute their capacity in part to Erlang's concurrency and in part to cloud hosting with SoftLayer. Amazon is the origin of SoftLayer's cloud services and single biggest reason one engineer can manage arbitrary numbers of servers/users:
The popularization of the term can be traced to 2006 when
Amazon.com introduced its Elastic Compute Cloud. [2]
What do these people do? I mean, for the other companies you quoted, there are physical products to be designed, manufactured, mounted or moved, I get it. But Paypal?
Why? Buffet and not Bezos are both profit-turners. Musk is not. I like that he's going after the bigger and riskier things, but he's small-scale right now.
Musk is in a league of his own. This is based on my own research and comparison. I believe I've watched every interview he's given, read his biography, read the in-depth profile on waitbutwhy.com, and followed his companies fairly closely. I've done the same with Bezos, since the day Amazon went public. While I highly respect Bezos, I believe if you did the same, you would come to the same conclusion.
Is this "tuning" typically done on the revenue side or the cost side? I'm surprised it's at all possible with proper revenue and cost recognition policies in place.
At Sun there was literally a taped square on the floor of the factory, and things in that square were "shipped" to as the quarter was finishing up the factory would figure out how much had to be shipped to make the numbers, and they would process enough orders to make that happen. If there weren't orders, then some "one time deals" would be mentioned to top customers who might get a really nice discount or something. Sometimes contractors are told to go home until the next quarter.
At NetApp there were other tools, service revenues, expenses, etc. One quarter the call went out for everyone to be sure they had expensed everything they had outstanding. Once the summer employee event shifted by a week. They would also do close the quarter incentive sales which could bring in just enough orders to keep it in line.
As far as I can tell this is something they teach in business school as part of your MBA training. It seems pretty universal. When things can't be managed that way, you get actual unexpected surprises, lay offs, or work furloughs, or perhaps you decide you aren't going to hire nearly as many next year so you trim all the contract staff.
Clearly people aren't as worried by over delivering as they are under delivering. As you can see from the Apple and Google earnings calls, a small miss negative can have an outsized impact on your stock price. But it is also important to not consistently have upside surprises as suddenly people start valuing the stock assuming an upside surprise.
Everybody lives and dies by the numbers, long term consequences be damned.
Even developers do this, although most of us resent having to do it. You manage risk and tech debt by splitting high risk projects into many small pieces, and amortizing improvements across low-complexity features. The long and short lines are never more than an order of magnitude or so apart, even though it might take ten 'tasks' to equal one change that the customer will actually notice.
When I was at OnSemi, we had multiple calls for mandatory vacation. Paid leave is a liability on the books, so by forcing employees to take it, they could make the numbers look better. The message from management each time was "We know we told you last time that it would never happen again, but..."
One old company I worked at shipped empty boxes to a customer to make the quarter come out right. Shipped the hardware the next week when it was ready.
Because they're "proving" they can make a profit when they want to in preparation for spending a decade investing 100% of profits into building a world-wide logistics system.
(I think it's an interesting theory, but the author provided little evidence.)
It's no rumor, Amazon is a logistics company. Beit servers or inventory. They just needs a reliable distribution system to compete with UPS and FedEx. I know for sure they are looking begin competing there, as one of my sources put it, "we've outgrown UPS."
Most big projects require a research & planning phase where a small team tries to learn everything possible about the domain, works out exactly what the opportunities are, and runs a few small trials to verify their assumptions. This is not capital intensive, and it's a good time to build up capital & goodwill for the rollout.
I didn't mean to imply that they are waiting. This is just one part of the preperation stage, so to speak. In fact they already have begun. (see the end of the article for links to rumors and actual current movements into logistics by Amazon.)
The timing and the incentives (employee retention) line up.
I find it very interesting to know what Amazon's competitive advantage would be from having their own logistics business.
1) Shipping is the definition of a commoditized business. Unlike AWS, for example, they will not be pioneering a new business model or technology.
2) What they pay right now to FedEx, UPS, USPS, DHL, OnTrac, etc. should be very close to zero margin, given their position to negotiate those companies against each other in real time. Surely, the margin should be comparable to the cost of capital.
3) Amazon seems to represent less than 10% of packages in the US [1]. Given that they have to cover more or less the same area as other shipping companies have, they will not have the economies of scale of other firms, so their cost per shipment may end up higher.
"Amazon seems to represent less than 10% of packages in the US [1]"
No.
They represent <10% of revenue for UPS, as the cite says.
That gives you no info about the percent of packages for UPS, despite the quora claim. It's not safe to assume they pay what others pay, and in fact, given the range of volume discounts, it's entirely possible they pay 1/3rd-1/5th what others pay, if not less. (I base this on the fact that the companies i've worked for, which have nowhere near amazon's volume, seem to pay around that). If that was correct, they could represent 5-6% of revenues but 15-25% of volume.
(it also tells you nothing about overall. It could be that combined across 6+ carriers, they represent a large percent of all package volume in the US).
> Shipping is the definition of a commoditized business. Unlike AWS, for example, they will not be pioneering a new business model or technology.
I'm guessing it's the one-hour-delivery thing - last year they started testing one hour delivery for popular products in a couple of pilot cities.[0]
Presumably they can't do one hour delivery with a traditional model of centralised-warehouse -> shipping company -> shipping company's regional hub -> customer; they need an Amazon warehouse near that city, with products dispatched from there to the customer directly, or it takes too much time. Building a warehouse and dispatch operation near every major city won't be cheap.
Related, I don't think certain niches of shipping are truly commoditized.
Have some high impact document that needs to be shipped somewhere within 24 hours and be guaranteed to get there safely? I can't imagine trusting anyone but FedEx for that.
There are two components to Prime Now, at least in NYC.
One is products that seem to be sold from an Amazon controlled or contracted warehouse, and the other are products sold by local businesses (e.g. produce from Westside Market).
You should toss all your preconceived notions. For example, Amazon would not have to cover all areas. It could easily just cover its densest areas and leave the rest to UPS, et al.
I would not underestimate what Amazon could pull off with complete control of shipping & logistics.
Controlling the last mile logistics means that Amazon can sell even more products. They can capture "I need it now" purchases with one-hour delivery, and they can capture grocery purchases because they can make sure the deliveries happen before the goods perish -- enabling them to compete with the likes of Wal-Mart.
Which feeds right into Prime, a subscription service locking the customer into Amazon's closed ecosystem. It makes sense to have full vertical control.
> Shipping is the definition of a commoditized business. Unlike AWS, for example, they will not be pioneering a new business model or technology.
Except Amazon has been innovating in the shipping area. Many times Amazon can get stuff to my building faster than I can go out and get it from a store.
Amazon's fundamental source of competitive advantage is rarely talked about, but I think this is a great example of what that is -- they have built a company that succeeds in very low margin businesses.
So they started in online retail with < 10% gross margin. With AWS with its ~40% GM they have INCREASED the GM of the company. Contrast this with Microsoft and Google which sell software at 80%+ GM. When they do Azure or GCE, they have to decrease their GM. This is hard! FedEx runs around 60% GM. So just think about what this will do for Amazon ...
I will probably get down voted but I think it's because we are in for a big downturn this year. Amazon is preparing for that and they will garner more market trust because they can show profits. When the bust happens, people are going to be very careful on what stocks they invest in and will most likely lean towards safer, profitable companies.
If Target can figure out that someone is pregnant based off of buying unscented lotion, mineral supplements, and cotton balls, then Amazon could easily gauge the financial health of its consumers. Perhaps they noticed a trend leading up to the last recession, and its occurring again. Whether or not it's true, it's certainly not outside the realm of possibility.
Another thing to consider is how the money is spent changes how much profit is made.
If Amazon reinvests into assets, that money isn't considered a loss. So it doesn't reduce profits. So when Amazon buys a video library those IPs are assets.
You only deduct spending that are expenses.
As Amazons business changes it might be harder to hide their profits in expenses.
investments in assets result in depreciations which are expenses that reduce profits; you don't write off the asset as a loss all in one year, but it all gets written off across a series of years.
I don't know. If you look at the income/growth graphs that growth from web services has continued quarterly for two years, and this is the second quarter of profit. I doubt they could have had an "oops" moment regarding almost a billion dollars over two quarters (6 months). It looks like a major change. Unless, like the article suggests, they are taking profits now to prepare for a larger capital investment in the near future.
They don't seem ready to me. Seems like a temporary blip due to their investment schedules. They clearly have ambitions to build out a logistics infrastructure, and they haven't even setup in some obvious markets yet (Australia). Lots more growth to pursue.
That's cash flow minus capital expenditures which means, at some point, Amazon is going to have to decide enough is enough and allow overall cash flow to come in well above its capital expenditures...like it's just done. Better a bit sooner than later (thanks to the discount part) if you think can sustain your advantage for less than you've been spending in proportion to your revenue.
Perhaps Amazon has reached some sort of cruising altitude.
Maybe I misunderstood him but I thought he was saying that as long as there were solid cash flows despite full capital expenditures that the stock would reflect those cash flows.
Less of a quibble and more of a core misunderstanding of what cash flow means in that context.
I think it's because of the bubble. No sense investing in innovation when you're chasing billions invested by VC firms. Better to bank profits for a couple years and then come back in.
That's absurd. Ignoring the sheer scale of the loan, there's no path for repayment. People don't tend to make loans when they don't expect to get the money back (with interest). Assuming someone lined up to loan Bezos $250 billion and gave him a ridiculously-generous 1% APR and 30-year term, the quarterly payments would be over 2.4 billion, or nearly 5 times as much as they just posted in their best profit ever.
So who exactly do you think has pockets deep enough to fund this 250 billion loan and accountants so terrible they can't see how badly it's going to go?
I was joking with colleague last night that Amazon's unexpected profits were largely due to us not turning off on-demand i2.2xl development instances overnight.
My theory: Bezos/Amazon is preparing for a potentially dangerous financial situation in the market, and taking a little cash out for a rainy day is a good idea.
Amazon bought 3 city blocks in Downtown Seattle a few years ago. Two of those are done or nearly done, the thirds one houses a scrotum-shaped building (three connected spheres, what's going on here?) that's still under construction.
Technically that counts as reinvesting profits, but its the old "Are we an X company or a real estate company?" issue that happens so often.
Personally I think it's the last chance for Bezos to roll around in his piles of cash before he has to start giving some back to his investors.
I wonder how much talent retention comes into play here, since Amazon has a very high ratio towards RSUs in the total comp package if I remember correctly.
When $AMZN girates or tanks, at least some part of their workforce would be tempted to leave. Though maybe that's the exact segment they wouldn't mind see leaving anyways?
> Though maybe that's the exact segment they wouldn't mind see leaving anyways?
Generally the people who leave voluntarily are the people you don't want to see leave. Good talent is likely to have little difficulty finding better opportunities. Mediocre to bad employees are going to have a hard time finding another job, so they stick around.
This is based on my personal observations as an Amazon employee, and not just hand-waving, by the way.
Amazon treats RSU's as cash compensation. It's a very stupid strategy to keep employees on the leash and from getting rich. If your RSU's double you won't get raises, bonuses, or more RSU's because your total compensation is above Amazon's "target" for you. This of course defeats the purpose of an incentive stock plan. Employee concerns are in no way aligned with the company when stock is just used as a cash bonus replacement. The ONLY reason people want stock is to make more than they could through salary. Amazon should just stop granting stock at this point since they too damn greedy to effectively use it to incentivize employees. People leave Amazon because if you want to get rich for your hard work you go somewhere else.
I think all of us who aspire to be entrepreneurs can learn something from the events happened after Amazon's stock crash during last quarterly earnings. Stock price dropped to about $482. Amazon quickly announced stock buyback program and stock is up again. It was around $612 before latest quarterly earnings report. And, it is now at $659. Keep an eye on Amazon's amazing stock management skills
My theory is they simply can't find enough things to spend on, but can't afford to lower AWS pricing without being swamped with more demand than they can handle.
I don't think Amazon are preparing for period of capital investment - making profits and then taking them away is surely worse than consistently making very little as far as the stock market is concerned.
This is not the sort of problem many businesses come up against.
Maybe they didn't stop re-investing all their profits. Whether Amazon keeps and re-invests all of its profit (as retained earnings) or returns it all to shareholders, the reported net income number doesn't change.
It seems like you would have to look at their balance sheet to answer this, not just their income statement.
People got spooked. The stock tumbled. Time to flip the switch back to 'profit' for a quarter or two, then once everyone understands that the switch exists, put it back to 'invest' where it belongs.
Amazon then, being a services, merchandising, payment processor conglomeration then has to be crazy hard to manage cashflow in any meaningful way.