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Amazon Unconcerned About Giant Quarterly Loss

By Jack Keough

In its latest quarterly earnings report, Amazon reported a huge loss and offered a disappointing outlook for the holiday season, once again disappointing shareholders and the financial community. Amazon’s stock immediately dropped 11 percent after that report, although it has recovered somewhat.

Those numbers have many asking once again: How long can Amazon continue to keep suffering these losses and how much patience will shareholders have in waiting for the giant e-retailer to turn a profit? Its stock, although it has rebounded since its earnings release, has been down more than 25 percent for the year.

But it is not only stockholders who are criticizing Amazon.

Steve Ballmer, the former CEO of Microsoft, rapped Amazon for its failure to make a profit. In an interview with newsman Charlie Rose on PBS, Ballmer offered some sharp comments about Amazon. “They make no money, Charlie,” he said. “In my world, you’re not a real business until you make some money. I mean, I have a hard time with businesses that don’t make money at some point. I get it if you don’t make money for two or three years, but Amazon’s — what — 21 years old and not making money. I have a hard time with that.”

But Jeff Bezos, the CEO of Amazon, doesn’t seem bothered by such criticism.

Bezos was in India recently where he announced that Amazon would invest more than $2 billion to expand its business in that country. In a rare interview with Mint, one of India’s largest business newspapers, Bezos made it clear that he intends to continue on the path that the company has followed for more than two decades.

Here’s what Bezos told Mint:

“We have from the very beginning—1997—when we went public, we’ve been super clear—or we’ve tried to be—about who we are and what our approach is. We don’t even claim our approach is right,” he said. “We just claim it’s ours and then people get to choose. And undoubtedly, there are a lot of people for whom it’s not right to be an investor in Amazon. And that’s okay with us. We never tried to convince anyone that they should be an investor in Amazon. Here’s what we’re doing—if that makes sense to you, then great. Over time, our approach has been very successful. We went public at $1.50 a share on a split-adjusted basis, and our stock is $300 a share. So we have created a lot of value for shareholders. We have a bunch of businesses and a bunch of arenas at Amazon that generate a significant amount of free cash flow.”

That strategy includes taking profits from business units that are making money and putting those monies into new ventures or products.

Bezos says he sees a substantial upside to business in India. Amazon has reportedly been meeting with wholesalers and manufacturers in India and rolling out the Amazon supply model into that country.

“We see huge potential in the Indian economy and for the growth of e-commerce in India. With this additional investment of US $2 billion, our team can continue to think big, innovate, and raise the bar for customers in India. At current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales,” said Bezos.

He went on to say that he is especially impressed with Amazon’s new “invention” called “Easy Ship” in which small to medium sized businesses can reach a large amount of customers on-line. Bezos said he is so impressed that he may roll out the concept to Amazon’s other business groups.

He told Mint during the interview: “I’m so excited about that. It is one of the things we may export to the rest of our markets. From my point of view, what this team did well is that they said ‘Let’s embrace the small and medium businesses and figure out how to give them tools to reach millions of online customers.’ That unleashed the growth we’ve seen. We also got lucky with our timing.”

With Amazon Easy Ship, a seller packs the shipment and confirms to Amazon that they are ready to ship. Amazon Logistics collects the shipment and ensures that the product is delivered to customers in 2-4 days.

Meanwhile, Bezos is spending money at a rapid rate to expand the company’s geographical footprint. It is building new skyscrapers in its home base of Seattle, buying more buildings, and constructing an office tower in London. It has spent—and is still spending—nearly $14 billion to build new fulfillment centers. It also announced recently that it has built its fifth fulfillment center in California.

But those fulfillment centers carry a heavy price. In fact, those centers are one of the top expense items for the Seattle-based company that has greatly caused pressure on profit margins.

Although it has refused to say how well AmazonSupply is doing financially, Amazon may take its model to other countries in addition to India.  AmazonSupply now carries 2.5 million items in 17 different product categories, compared to 14 product groups and 500,000 items when it began operations in April 2012.

Amazon continues to hire rapidly. During this past year, Amazon has hired more than 50,000 employees and it will hire another 80,000 for the holiday season. It also has job postings for a number of positions in AS but has not indicated how many of those jobs have been filled. It’s interesting to note that Amazon also has one of the highest turnover rates of employees among large corporations.

And Amazon doesn’t seem overly concerned about giant e-commerce company Alibaba, which owns about 70 percent of the e-commerce business in China. Before its recent successful IPO, Alibaba top executives said it intended to “aggressively pursue” businesses in the U.S. once its IPO was completed. Alibaba’s $25 billion IPO turned out to be the largest in history
Bezos seems to shrug off the new competitor pointing out that Amazon faces competition in every country it does business in.

But there is one important difference: Alibaba is profitable. Amazon is not.

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com.

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