May 232017

As stock flirts with $1,000 a share*, here are some thoughts to ponder from the Wall Street Journal (editorial page May 19, 2017):

Amazon marks 20 years as a public company this week, and if you got in on the ground floor you have a lot to celebrate. A $100 investment in the initial public offering of the three-year-old Internet company in 1997 is worth more than $49,000 today. 

Even by the standards of successful Silicon Valley start-ups, that’s hitting the jackpot. Wealth creation is the business of democratic capitalism, and by taking its market capitalization to $460 billion from $660 million in two decades, Amazon has delivered.

It’s worth a moment to consider some business and policy lessons. The beauty of the free market is that entrepreneurs seeking to get rich have to make their customers better off at the same time. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest,” Adam Smith wrote in the 18th century.’s secret sauce is the willingness of CEO Jeff Bezos to plow cash flow into long-term investments. Amazon for years has sacrificed profits in favor huge investments in infrastructure (fulfillment centers, information technology) that have transformed an online bookseller into “The Everything Store.”

Bezos is an extremely patient investor. For perspective on his approach, note this from Andrew Ross Sorkin in the New York Times May 16, 2017:

Most executives are worried about the next quarter, but Mr. Bezos is worried about what will happen years from now. That is a competitive advantage that many chief executives could learn from.

“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people,” Mr. Bezos told Wired in 2011. Here, he was expressing the view that some chief executives think in three-year cycles — a relatively generous assessment, given that most top executives don’t last many more years than that.

“But,” he continued, “if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that.”

Bezos, famous (or infamous) for telling competitors that “your margin is my opportunity,” keeps looking for new fields to conquer, new businesses to disrupt. Are you ready to buy appliances and furniture from Amazon? It is ready for you.

CNBC reports that Amazon is eyeing the $400 billion retail-pharmacy business. In Seattle, Amazon Prime members can buy and pay for groceries online and pick them up at cashless Amazon retail stores.

The company that killed off thousands of independent bookstores is, ironically, now opening physical bookstores of its own. It is investing in its own fleet of planes and trucks.

The investor-oriented weekly Barron’s famously pooh-poohed’s prospects early on. In a cover story (Amazon.bomb) that took note of a spate of acquisitions, Barron’s opined that Amazon increasingly acts like the “dim-bulb businessman” who loses money on every sale, but tries to make it up on volume.

The Barron’s call was right for a while. Amazon stock, $60 at the time, evaporated to $10 a share in the meltdown. But as Barron’s subsequently admitted, it has been “deafeningly silent” about Amazon’s rise to one of the largest companies in the world.

No more. Barron’s now opines that by the end of this decade, “Amazon’s profits will balloon, not because Bezos wants them to, but because it will be unavoidable, as revenues overwhelm costs and investments.” And: “The next downturn for Amazon stock might not come when profits disappoint, but when they become too obvious. Forget Amazon.bomb, but Amazon.boring is a long-term risk.”

Amazon boring? Not any time soon, as far as I am concerned. I’m in.

 * stock crossed the $1,000 line on May 30, 2017. The New York Times marked the occasion by listing just some of the things Amazon has going for it.

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