It's Google's economy right? So let's start with this Mountain View, Calif., Web services giant. The company was not shy in bragging about revenues gone wild for a stunning 36% increase in sales -- to a world-beating $50.1 billion. "Not a bad achievement in just a decade and a half," was CEO's Larry Page's scrubbed, investor relations-ready line. Even more remarkable for an information age company, there was more real earnings, rather than less, in 2012. Bottom-line net income rose a healthy 10.3%, to $10.7 billion for the 2012 period. Investors ignored the 43% increase in total costs and expenses for the year and off the stock went for say an 8 percentish bull ride. Digital-age mission accomplished, right? Well, except when you compare that with the annual income statement story told by the other members of our information-age trio.
Young Mr. Mark Zuckerberg, during the same 2012 period, saw his company grow revenues by a Google-esque roughly 37.1%, to $5.1 billion. But net income -- you know, the money left after you're done spending what's needed to make that net income -- could not keep up the information age party. It collapsed from an even $1 billion in 2011 to just $53 million. That's something like 94% drop. The culprit? Operating expenses that exploded by 132% for the year. Investors -- at least for awhile; one never knows with this stock -- again overlooked these issues, mostly due to improved subscriber numbers and better-than-expected mobile ad rates. And Facebook stock saw fresh life. "In 2012, we connected over a billion people and became a mobile company," was Zuckerberg's investor cheerleading line. Amazon's $60 billion expense line
Things get frankly bizarre when we bake in Amazon's 2012 annual income statement performance to the narrative. I realize Amazon is an "Internet retailer" that sells and ships things. And some argue it's ridiculous to compare it to Facebook and Google, which sell "Internet advertising and services." You make the call. No question, there was a Google and Facebook-like jump in net sales: 27.1% jump, to $61.1 billion for 2012. But here's the thing: Bottom line net income was not merely Facebook ugly; with Amazon it was not there at all. Apparently, Jeff Bezos has decided it's not scary enough to spend $47.2 billion out of the $48.1 billion he made in 2011 to wind up with just $631 million in net income for 2011. Oh no. In 2012 he had to spend $60.4 billion to lose(!) $39 million. A nonprofit foundation -- which is basically what this company is now -- would lose its tax-free status with such performance. But Amazon.org is not phased. "We're now seeing the transition we've been expecting," was Bezos' cryptic advice for investors. The no-margin Web
No big data algo or highly paid analyst is needed. We can all do the math ourselves: Between the three, investors are looking at about $436 billion in market cap, or about the GDP of Argentina, every last dollar of which is under pressure from expenses raising faster than sales. Rally or not, Internet or not, Information Age or not, in the context of history, to me this is not sustainable.