Jeff Bezos Says Amazon.com, Inc. (AMZN) Can Make Money
Amazon.com, Inc. (NASDAQ:AMZN) can make money. In an interview with Business Insider’s Editor in Chief, Henry Blodget. Henry popped the magical question “Let’s just establish this once and for all: Can Amazon Make money?”.
In the video Jeff Bezos responds:
“Well, Yes in fact we have in the past. You have to understand, there are many ways of thinking about this but the reality is that Amazon is a collection of several businesses and initiatives and we have some very significant very profitable more established businesses that are free cash flow generating very significantly and then fortunately the way I think about it we have lots of opportunities to invest in new initiatives and we take advantage of those opportunities. So it’s kind of like we built this lemon stand 20 years ago the lemon stand has become very profitable over time and we’ve decided to use our skills we’ve acquired over time to open a hamburger stand, hot dog stand… and so on and so on, so we’re investing in new initiatives..”
Jeff discusses expectations and how there are different kinds of investors with different horizons. He talks about the Warren Buffett Quote, “You can hold a rock concert and that’s okay or you could hold a ballet and that’s okay, just don’t hold a rock concert and advertise it as a ballet”, making it clear who you are. If someone wants a ballet and gets a rock concert they aren’t going to be happy. Jeff also recommends reading their 1997 Letter to the Shareholders, which 17 years ago clearly defines the approach they take today. The 1997 Letter to Shareholders is a must read for those seeking clarity on the Amazon approach.
Amazon 1997 Letter to Shareholders: Amazon 1997 Letter to Shareholders.
1997 Letter to Shareholders Defines Company’s Approach
In 1997, Jeff clearly defines that “It’s All About the Long Term” and that their fundamental measure of success will be the value created over the long term as the direct result of the company’s ability to solidify and extend their current market leadership position through customer and revenue growth. Jeff laid out all the principles that Amazon adheres to today over 17 years ago, which include focusing relentlessly on their customers and to make investment decisions in light of long-term market leadership considerations rather than short-term profitability. The company mentioned a focus on maximizing the present value of future cash flows over GAAP accounting and that they will make “bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages”.
Investors like smooth lines, but that isn’t how it works
In closing, Jeff reminds us that as investors we love smooth lines going upwards, but that isn’t how it works and managing your quarterly earnings precisely upwards would be a mistake. Most of the work for a particular quarter happened years ago. Managing quarters for the short term is not something you want to do. Jeff likes to focus on the controllable inputs instead of the outputs or results to achieve better long term results. He focuses on the return on invested capital and free cash flow, over the long haul.
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