[HN Gopher] Amazon and the "profitless business model" fallacy (... ___________________________________________________________________ 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... ___________________________________________________________________ (page generated 2021-12-23 23:00 UTC)