Originally Posted by Russell
They are growing the business.
Net sales last year for Amazon $61.9b, operating expenses $61.2b. Operating income was $690m, net loss of $39m. They try to make people think of expansion by saying things like:
"The increase in cost of sales in absolute dollars in 2012, 2011, and 2010 compared to the comparable prior year periods, is primarily due to increased product, digital content, and shipping costs resulting from increased sales, as well as from expansion of digital offerings."
They want investors to keep thinking about growth and ignore the fact that their expenses grow proportionally with their increased sales almost 1:1.
They spent $3.7b on property, website and $3.6b in investing and grew their cash with financing and investment activity.
If they can make the company look attractive, they can bring investors in that will pay more for shares. It all looks good until they stop growing. If the complexity of the scale of their operation becomes too much, the losses can keep increasing just as they have been.
They are valued at 1/3 of Apple but what happens if their losses keep increasing at the same rate, say $0.5b loss next year, then $1b and so on. Eventually they'll run out of assets to fund their losses. Maybe it'll run for 10-20 years and wipe out most other retail outfits but the growth will stop and the shareholders will realise they are holding stock in a company that has no means to give them any financial return. The stock value may even collapse as the market determines Amazon's intrinsic value and the same thing will happen with Apple, lots of bleating about how the shareholders who didn't sell lost money and how the management needs to be replaced and whatever other measures until someone else funds their losses.
Maybe they'll grow revenue up to match Walmart's $460b+. That can happen by growing revenue 25% for the next 10 years. But their stock price won't grow at the same rate because they aren't worth more than Apple. Somewhere in the next few years (I'd say 3 years), people are going to realise this and see that Walmart has a market cap of $264b with revenues of $460b with positive net income, now at $17b and growing not decreasing. That's while maintaining a retail chain and huge amount of staff that Amazon doesn't have. They are doing far better than Amazon while maintaining a more expensive infrastructure but only valued at 50% more than Amazon. The thing about online retail is that people aren't passionate enough (and are not required) to make use of a taser to get a good deal:
They just click the next website along for a lower price so it demands the lowest price wins. There's some loyalty to trusted services but it'll only take a $5 difference to break that.
This looks to be the pump part of the pump and dump. If Amazon gets in the $550 region, people will see that it's not worth more than Walmart and likely the people who have been pushing it will start selling just above $500 or they might do what they did with Apple. Just keep hyping it as long as the big institutions see people buying. Then their computers start the big sell-off to profit and buy back in at a low price for more growth and security. Guaranteed profits for the investment banks and random wins for the gamblers on the outside.