A few days ago, I wrote (Amazon: In Future We Trust) about the unshakable confidence the financial backers have, in Amazon’s
future, despite the company appearing as an enigma to its investors.
There are all shades of opinion on Amazon’s financial
performance, ever since it started selling books online, in 1995. People, on both sides of the divide, have
carried out forensics of the company's financial data, and have been offering their views.
It was natural for this debate to heat up more after their Q3 earning report,
showing sharp growth in revenue with losses.
At the heart of the debate is this chart:(courtesy Benedict Evans)
This trend prompted +Will Oremus of Slate to
wonder if Bezos Midas Touch has been working in reverse. He was reflecting the sentiments of another
Slate fellow “Matthew Yglesias earlier this year:
"Amazon, as best I can tell, is a charitable organization being run by
elements of the investment community for the benefit of consumers."
It is difficult to deny the strange alchemy for investors, where their gold is getting converted into…consumer happiness!
Both Rabbit & the Hare
The defense has not been less vigorous. +Eugene Wei
in his riposte, dissected the assertion of the “profitless
business model.” He has expressed
confidence that Amazon’s business is profitable, whether in retail or in the platform,
and that we should be looking deeper into metrics like Free Cash Flow. He admits
that these questions are arising due to the opacity surrounding Amazon’s
accounts.
“Part of this problem comes from the limited visibility into
the dynamics of its business finances. Why doesn't Amazon break out more detail
in its financial reporting to help the external world understand all these
intricacies”
He justifies privacy of this veil, by asserting
that tech companies avoid disclosing details to investors because they have “an interesting ambivalence towards the
public capital markets. They rebel against resource dependence
theory because they don't believe
their investors know how to run their businesses better than they do, but on
the other hand, being public is a great boon to compensating knowledge workers
who have a lot of job options.”
While this view is not devoid of its own share of minefields, the one that stands
out, is that the tech companies he is comparing Amazon with, Google and Apple, have been making solid profits, besides growing both their market and technology.
Mastering Investor's Sentiments?
This issue is not about what Amazon or what its charismatic CEO,
Jeff Bezos, is attempting to do. This is
more in the investor's domain. They are buying into a promise that at some (as
yet indeterminate) time in future, Amazon will stand tall and fearless, without
competition, with big profits- a vision drawn more by investor’s inferences than by any public statement by the company’s CEO or its Board.
It is not often that
Wall Street reposes so much of confidence in a tech company for 18 years!
While this debate will rage on, quarter after quarter, Jeff Bezos will continue on the path to build something like an e-Commerce Operating System at a Global
level, and, continue to distribute happiness to its customers.
