Don’t pretend Amazon and Jeff Bezos are something they’re not1 min read . Updated: 28 Jul 2017, 10:58 AM IST
Amazon is exactly the company it promises to be as it plows almost every last cent of sales back into fuelling Jeff Bezos's outsized ambitions
Jeff Bezos may need to spend some of his net worth on active listening classes for Amazon investors.
The company keeps telling Wall Street it is spending big on areas such as programming for its Amazon Prime web video service, on merchandise warehouses and on its expansion in India and other international markets. Somehow, the message hasn’t gotten through and investors still keep expecting the magic moment when Amazon will become a profit machine.
Those warped expectations met reality on Thursday. Amazon posted a better-than-expected 25% jump in revenue in the second quarter. This is a company with more than $150 billion in revenue over the last 12 months, and it is still growing like a teenager.
But, oh, that bottom line. Amazon’s operating profit was a tiny $628 million, or a blink-and-you’ll-miss-it margin of 1.7%. The high-margin Amazon Web Services cloud-computing division had more operating profit, $916 million, than the entire company. (That’s because Amazon’s international retail operations lose money.) Amazon’s forecast for the third quarter called for more of the same. Shares fell.
Again, though, Amazon is exactly the company it promises to be. It plows almost every last cent of sales back into fuelling Bezos’s outsized ambitions. He is taking over a huge supermarket chain, for goodness’ sake. That is the strongest signal investors can get that Amazon is in expansion mode and wading into some unusual places.
Either you believe Amazon deserves the benefit of the doubt—and I do—or you don’t. Yes, Amazon needs to give investors a better explanation for how it plans to win in physical grocery stores, online entertainment and other areas. And some investors are justifiably getting nervous about the stretching valuations of Amazon and other tech titans after big stock gains this year.
But Amazon is Amazon. It’s grabbing revenue and market share at the expense of all other priorities. Don’t pretend Bezos is going to wake up tomorrow and run his company to squeeze fat profits. Bloomberg Gadfly