[HN Gopher] Amazon and the "Profitless Business Model" Fallacy
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Amazon and the "Profitless Business Model" Fallacy
Author : serviette
Score : 74 points
Date : 2025-07-19 04:37 UTC (2 days ago)
(HTM) web link (www.eugenewei.com)
(TXT) w3m dump (www.eugenewei.com)
| aaronbrethorst wrote:
| (2013)
| turnsout wrote:
| An important note, because Amazon is now profitable (though not
| wildly so, given their revenue)
| adventured wrote:
| $651 billion in revenue, $71 billion in operating income.
| They're approaching wildly profitable for an extremely large
| business. To be that big and to eclipse a 10% op income
| margin is exceptional. It's closing in on three times the
| margin of Walmart (obviously Amazon is making their margin in
| AWS and ads, not retail).
|
| $71 billion in operating income is so exceptional only seven
| other companies in history have gotten that large: Apple,
| Microsoft, Google, Nvidia, Facebook, Exxon and Aramco (if you
| count them as a company). And importantly, that $71 billion
| is rapidly expanding - it has doubled just since fiscal 2023.
| In 15 months sales increased $76 billion and op income
| increased by $35 billion.
|
| The spigot is flowing. $100b in op income is likely not far
| away.
| a_c wrote:
| The 2013 me wouldn't make any sense out of this article. I'm glad
| the Theseus ship worked a fair bit on me
| CGMthrowaway wrote:
| Is the whole gist of this article basically, "start with your
| fixed cost business model and reinvest all proceeds into growth
| and scale"? What else am I missing?
| agentcoops wrote:
| They bury the important point halfway through the article:
| Amazon is a free-cash-flow machine and it has almost always
| been so. The distinction is subtle [1], but consistent (and
| ideally ever-growing) free-cash-flow is what really matters in
| valuing a highly capitalized company, even if the firm has
| always re-invested it each quarter to date. The important point
| to investors is that the firm's re-investment is a decision --
| the company is not brittle to economic downturn and any quarter
| could decide to payout investors through share buyback etc.
|
| Copious free-cash-flow every quarter is why software companies
| generally have higher valuations than traditional industries
| and why it was novel that Amazon, which is not obviously a
| software company, behaves as one financially.
|
| [1] https://www.investopedia.com/terms/f/freecashflow.asp
| CGMthrowaway wrote:
| Makes sense thanks. Software isnt the only industry where FCF
| matters most either
| ljlolel wrote:
| What else?
| klank wrote:
| > any quarter could decide to payout investors through share
| buyback etc.
|
| Your etc. is layoffs. In this example, the "free-cash-flow"
| is people's salaries. I'm not personally comfortable with it
| being considered such a liquid asset.
| troupo wrote:
| Since then, Amazon kept growing and eating other markets (see
| AWS), or failing to eat markets (see Alexa) while still producing
| a shitton of money to finance all of that.
|
| However, most of the rest of the industry simply collectively
| decided that _profits don 't matter_. Most companies of past
| 10-15 years stopped caring about profits, and only talk about
| revenue. The are now only two goals in mind:
|
| - survive long enough on unlimited investor money to be sold to
| the highest bidder and be immediately shutdown
|
| - survive long enough on unlimited investor money to try and
| corner a market through investor-subdidized price dumping and
| near-illegal business practices, and then maybe look at how to
| get some of the lost money back, maybe
| axus wrote:
| Get bought by IBM, Oracle, or Broadcom, and let them be the
| villains.
| teddyh wrote:
| Once the exit is finalized, who cares about the customers?
| That's not my department, says Wernher von Braun.
| criemen wrote:
| Thanks for the reminder!
| https://www.youtube.com/watch?v=TjDEsGZLbio
| masfuerte wrote:
| You may not be aware that Tom Lehrer has released all his
| songs into the public domain:
|
| https://tomlehrersongs.com/
|
| https://tomlehrersongs.com/wernher-von-braun/
| Animats wrote:
| "Profits don't matter" only worked during the period of zero
| interest rates.
|
| AMZN started to become profitable in 2021.[1] By 2023, it was
| _very_ profitable. $17 billion in Q1 2025.
|
| [1] https://www.macrotrends.net/stocks/charts/AMZN/amazon/net-
| in...
| jongjong wrote:
| It's weird because revenue can easily be gamed. I could set up
| a shell company and quickly sell expensive goods back and forth
| between the two companies and achieve any revenue number I
| want. Profits are much harder to fake however, especially in
| the long run.
| typs wrote:
| This post tracks well with much analysis of some (emphasis some)
| AI companies in this particular audience.
| pengaru wrote:
| "Revenue solves all problems"
| metabagel wrote:
| Please update the title with "(2013)". This article was published
| on October 26, 2013.
| JCM9 wrote:
| Amazon generates a ton of cash and the strategy of rolling that
| back into the business has, broadly, worked well. The challenge
| now as the company gets on in years is that there's some bits
| making cash and a whole lot that's not. That OK so long as the
| cash keeps coming in to subsidize things but if that changes
| things will get messy quickly. They're clearly trying to start
| rationalizing that now, including with AWS where they're starting
| to address some of the bloat there and lack of a coherent
| strategy at scale outside EC2, storage, and a few other core
| services.
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