Amazon lost a ton of money in the third quarter—far worse than analysts’ already-pessimistic expectations. And they and shareholders are increasingly realizing that all the “investments” Amazon is constantly making in Kindle, Fire phone, TV, octocopters, the cloud, etc. are not ways of increasing future profits. They are scams to excuse current losses, to excuse inability to earn an adequate ROE. . The amazon business model fundamentally does not work. There is no business genius in selling ordinary products really cheap. Amazon’s sole claim to fame is high top-line growth (sales) and they achieve that by “buying the business”—selling products and shipping too cheap to make an adequate profit margin or ROE. . Amazon implies that all they have to do to have a great return on equity is stop the new product line investments. Oh, yeah. Let’ see you do it, then. . When they are finally forced to do that, and can’t, their stock price will collapse, and perhaps, along with it, the whole get-fabulously-rich-through-a-dot-com-IPO business model. . Silicon Valley, which is where I live, will have to make money the old-fashioned way: by finding a need and filling it with products and services that sell for more than they cost to make. Apple and Google seem to be real businesses. Twitter, Facebook, H-P, eBay, etc. all strike me as free services doomed to be Craigslisted or Wikipediaed or Delled out of existence as significantly profitable companies.
Posted on: Fri, 24 Oct 2014 18:15:34 +0000
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