This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Best Explanation of Amazon's Stock Market Success Yet

Thanks to Jeff Macke of Yahoo! Finance for Tweeting me towards this awesome Slate article by Matthew Yglesias, which Business Insider picked up over the weekend.

It's well worth your time to read How Jeff Bezos Can Take Over The World Without Earning A Profit (even though he actually did earn a profit in Q4), but here are what I consider the key excerpts/takeaways:

Over the past five years ... the retailer of the future managed to more than triple its sales while slicing profits by more than half. Its a business success story like no other in the world.
To understand the significance of Amazon's lack of profits, you need to distinguish it from another class of unprofitable company: the high-tech startup. Technology companies backed by venture capitalists often rise to prominence without showing profits ...
The prevailing theory in Silicon Valley is that it's a mistake for new companies to focus too much on developing revenue ... it makes sense for a company to focus first and foremost on building a great product and getting people to use it. Once you've reached a critical mass of users,then comes the time to think about revenue strategies ... Once upon a time, Google (GOOG) and Facebook (FB) were just impressive products with little or no revenue. Today theyre financial juggernauts that have parlayed their user bases into an advertising bonanza ...
In other words, -- growth first, revenue later -- is a risky business strategy, but a proven one ...
Amazon doesn't fit this mold ...
This image of a firm that remains a darling of Wall Street despite a lack of profitability is tempting. But the truth is more likely the opposite. Amazon doesn't turn a profit because its a darling of Wall Street.

Yglesias goes on to argue that Jeff Bezos was smart enough, intentionally or not, to make Amazon as profitable as possible in the early 2000s after the dot-com bust noting ...

Wall Street was suffering from a massive Internet hangover, and Bezos provided the cure. A native e-commerce player that sold things for more money than it cost to obtain and deliver them. A concrete demonstration that the Internet was a real business platform.

Once tech roared back into investors' good graces, Bezos, according to Yglesias, "quietly took advantage of that spirit of re-enchantment to stop worrying about profits."

The author goes on use several fantastic examples to illustrate his story and close with something traditional value investors and other chirpers and Amazon haters can't seem to wrap their heads around: The no-profit party will, quite likely, continue to roll on.

Must Read: Sears Responds to Twitter Controversy (Update 1)

The beauty of Yglesias's Slate piece is that it articulates notions of a completely different company doing business in an entirely different way thanks, in large part, to a mix of good luck and Bezos's genius. Amazon has created a context it operates in that other companies cannot understand, let alone co-opt, making it impossible for them to battle effectively within their present -- and very limited -- compete on price strategies.

--Written by Rocco Pendola in Santa Monica, Calif.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks. Rocco Pendola is a columnist for TheStreet. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AMZN $659.05 -1.80%
AAPL $93.21 -0.44%
FB $117.80 -0.22%
GOOG $701.26 0.80%
TSLA $211.34 -5.00%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs