[HN Gopher] Amazon and the "profitless business model" fallacy (...
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Amazon and the "profitless business model" fallacy (2013)
Author : simonebrunozzi
Score : 15 points
Date : 2021-12-23 12:41 UTC (10 hours ago)
(HTM) web link (www.eugenewei.com)
(TXT) w3m dump (www.eugenewei.com)
| dang wrote:
| Discussed at the time:
|
| _Amazon and the "profitless business model" fallacy_ -
| https://news.ycombinator.com/item?id=6620598 - Oct 2013 (137
| comments)
| SilasX wrote:
| The previous discussion had a good top comment:
|
| https://news.ycombinator.com/item?id=6620885
|
| >However, things are not that simple. Sometimes some expenses
| which are about building for the future and investing into new
| growth are not capitalized. This is the case because for some
| expenses the benefits are so uncertain and difficult to quantify
| that the SEC requires that they are reported as ordinary expenses
| instead of capital spending. These types of expenses tend to
| involve R&D and may include certain administrative expenses
| associated with growth initiatives.
|
| That shows why GAAP has legitimately different standards of
| profitability than an investor or HN comment might.
|
| When people bring up "haha, Uber/Amazon has never even been
| [GAAP] profitable! What a joke!", it's usually to make the point
| that, "investors are dumb, this enterprise isn't even capable of
| value creation because they can't sell outputs for more than
| production costs, what a scam".
|
| But that doesn't follow at all from GAAP-non-profitability. If a
| company _would_ have been profitable but for regularly dumping
| fortunes into speculative projects, that's still great news for
| investors. It means they could one day give up on that
| speculation and go back to taking those easy profits from value
| creation.
| TaylorAlexander wrote:
| There's so much news where people read a headline and believe
| it uncritically. I always thought it was silly that people
| accused Amazon of being unable to make a profit when they were
| obviously intentionally investing their would-be profits in to
| growth.
|
| A lot of people don't really care if what they say is accurate.
| foobarian wrote:
| I always wonder if this is why they make us fill out time
| sheets. I also always gently propose to our management chain to
| share the money we save on taxes by doing the timesheets as an
| extra incentive, but so far I was not successful :-)
| sokoloff wrote:
| Any time that your company is obligated to capitalize results
| in them paying more current taxes, not less. (Time that is
| expensed fully this year is already tax-deductible.)
|
| The reality is (at least in the US and probably elsewhere),
| that it's not an option to just decide to expense or
| capitalize everything and so the timesheets might be better
| viewed as the mechanism the company has chosen to remain
| compliant with the law and not something that's
| optional/subject to incentive pay.
| foobarian wrote:
| Right, I didn't think of the compliance angle. In my case
| the leadership justification is that doing timesheets
| "saves us money on taxes." Given how much most of us
| dislike doing the timesheets I thought it would be nice if
| they told us exactly how much that savings is, and if a
| large number possibly we would all be more enthusiastic
| about doing them.
| throwoutway wrote:
| Depends on the projects in your time sheets. My time sheets
| were various businesses (customer) that I was billing time
| against
| leobg wrote:
| "Tesla loses money on every car they sell" was another popular
| one. People seriously believed it.
| triactual wrote:
| This one actually blew my mind at the time. Tesla had a wait
| list ten miles long and an obviously superior product
| (safety, speed, comfort, space, the whole electric thing,
| etc.). Sometimes, a business isn't as complicated as people
| make it.
| anonporridge wrote:
| It kind of seems like traditional finance people and investors
| who spent well over a decade bashing the growth of companies like
| Amazon have severely over corrected by spewing as much money as
| they can into any vaguely similar tech company, potentially
| creating a new investment bubble that's going to crash when a lot
| of companies fail to ever flip into profitability.
| missedthecue wrote:
| People always say that wall street bashed Amazon for growth
| over profits but I don't think that's true. Amazon has always
| been endowed with a massive earnings and sales ratio.
|
| If wall street had been bashing Amazon, you'd think their stock
| would have been muddling along with low multiple over the past
| 20 years.
| xwdv wrote:
| People have a hard on for seeing profit. It's like they don't
| understand the opportunity cost of taking profit means you are
| not investing in your business to make bigger profit. When I see
| profit, I see inefficiency. A young business should have zero
| profit until it can no longer grow.
| adventured wrote:
| So with zero profit, operating on a razor line at all times,
| what's your plan for major acquisitions or severe shock events
| outside of your control (eg national economic recession)? Where
| is the cash to come from on that terrible rainy day or when a
| huge opportunity presents and you need cash.
|
| If you're not building cash, how do you plan to avoid
| catastrophic, unnecessary damage to your business structure
| when a recession hits? Banks hate to lend during recession, and
| lending gets a lot more expensive when times are bad.
|
| And banks generally are horrible alternatives when it comes to
| capital for acquisitions, unless you're a large corporation.
|
| Dependent on venture capital? Another horrible, expensive
| alternative to profit.
|
| You're seeing inefficiency in profit because you're not pricing
| in everything in the operating life of a business correctly.
| aksss wrote:
| I think GP is using 'profit' to talk about wealth extraction
| from the business. Putting surplus cash into an emergency
| fund, maintaining a cash balance for unforeseen costs, or
| similar wouldn't be quite the same thing. One way to think
| about that is that if your company has a financial goal of $X
| for a cash reserve, the lack of it can be considered a
| liability, diminishing net profit.
| castratikron wrote:
| One thing that is not known to everyone and therefore may come
| as a surprise to some is that corporations (in the US) are
| taxed _on profit_ , not on income. This is the explanation to
| the click baity titles like "Amazon paid less tax than you this
| year!" etc. So any profit a company makes is basically the same
| as writing a check to the government; more likely, it would be
| better spent growing the business. Any kind of growth company
| should have a goal of making close to zero profit.
| mathattack wrote:
| A lot is accounting treatment, though I agree with you in terms
| of cash. Businesses with high value investment opportunities
| should spend every dollar they have and then some. If it's on
| something that gets expensed (Marketing) then profit is zero.
| If it's something that gets capitalized (equipment) then the
| cash hit is immediate but profit impact is peanut buttered over
| time. Either way companies with growth prospects should spend.
|
| The flip side is that many companies get large enough that they
| can't invest smartly any more. So they should give money back.
| (IBM, etc)
| Animats wrote:
| Well, they certainly fixed that problem.[1]
|
| [1] https://www.macrotrends.net/stocks/charts/AMZN/amazon/net-
| pr...
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