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Stop Hating Amazon, It Can Spend-and-Grow Forever

Bears lament what they like to call "razor-thin margins" and profitability, which Amazon does not expect to achieve for the most recent quarter. That's a pretty easy argument to make. It's convincing. It pays, however, to provide some context alongside it.

In addition to revenue growth, investors also want transparency and visibility. Amazon provides both. In fact, the company's CFO, Tom Szkutak, probably runs the most straightforward, easy-to-follow conference call in the business. You don't need an MBA to understand what is a refreshingly accessible call.

Amazon bears don't need to listen to the conference calls, though. They have made their minds up already. It's much easier to regurgitate the same headlines -- like political slogans -- about margins and profits until they become Internet legend.

That's exactly what they've become. Urban legend. Folk tales. Biblical parables. Internet meme.

As I highlighted in a recent article on Amazon, the media has grilled Jeff Bezos about profitability versus spending since 1999. He has been answering the same way for 13 years. Paraphrasing here, As long as we have massive long-term opportunity in front of us, we will spend to take advantage of that opportunity and grow for the long-term.

Quarter after quarter, Amazon not only speaks about opportunity, it illustrates it by reporting past and predicting future growth. Nobody can question Amazon's growth trajectory.

The company, with absolutely nothing to hide, follows the discussion of growth and growth prospects with straight talk about expenses. Here's Szkutak from the second-quarter call:
Our Q2 2012 capital expenditures were $657 million, the increase in capital expenditures reflects additional investments in support of continued business growth ...
We expect [Q3] capital expenditures including capitalized software development to be approximately $0.8 billion to $0.9 billion. These anticipated investments are driven primarily by our expectations of a continued business growth consisting of investments in technology infrastructure, including Amazon web service and additional capacity to support our fulfillment operations.

I'm getting all of this from the webcast of Amazon's second-quarter call. It's public information. You can listen to it as well. Live when it happens. In the archive after the fact. Again, Amazon's not hiding a darn thing.

Investors reward growth. And they reward companies who provide transparency into the business. Amazon presents a straightforward proposition. It leaves nothing for investors to wonder about. That's why the stock rebounds so nicely after a pullback on noise or some other phantom disappointment.

It's really simple math. Massive growth now. Enormous future growth potential. This requires a considerable amount of spending on the ecosystem, the customer experience and capacity.

If Amazon sees growth moderate, it will pull back on the spending cycle, thus easing pressure on margins and profitability.
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