If you are looking for an exceptional case study in reviewing a company strategy from its balance sheet and P&L, then look no further than here.
http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-profits-and-why-it-works
Benedict Evans has a great series of charts to enable you to understand why Amazon works.
Amazon hasn’t declared a meaningful profit, ever.
The company goes against all business tenets about returning profit to shareholders.
Yet the share price continues to be a strong performer
Here’s the summary of the case study
Still, investors put their money into companies, Amazon and any other, with the expectation that at some point they will get cash out. With Amazon, Bezos is deferring that profit-producing, investor-rewarding day almost indefinitely into the future. This prompts the suggestion that Amazon is the world’s biggest ‘lifestyle business’ – Bezos is running it for fun, not to deliver economic returns to shareholders, at least not any time soon.
But while he certainly does seem to be having fun, he is also building a company, with all the cash he can get his hands on, to capture a larger and larger share of the future of commerce. When you buy Amazon stock (the main currency with which Amazon employees are paid, incidentally), you are buying a bet that he can convert a huge portion of all commerce to flow through the Amazon machine. The question to ask isn’t whether Amazon is some profitless ponzi scheme, but whether you believe Bezos can capture the future. That, and how long are you willing to wait?
My view is… It’s Bezos’s company and I believe he will continue to invest everything he makes growing the company as fast as he can, forget the profit. If Amazon stops growing as fast as it can, some alternate will take over. It’s a never-ending Darwinian fight. Every day Amazon must grow … Because that’s what it does.
The moment Bezos decides to pay a dividend, the share price will implode!
Why do I say this?
Learning from my own investment in Apple- there are two archetype investors; those who buy growth companies and those who buy value companies. Your company must be clearly defined as one or the other AND must deliver either maximum growth (revenue growth over past Qtr and past Year) or maximum growth ( measured either PE or PEG ratios). Anything less risks share price collapse.
When Apple paid a dividend the share price collapsed. My view was that a dividend signaled to growth-focused shareholders that Apple wasn’t investing everything for growth and so they rapidly sold their shares to buy other growth stocks and the share price was too high for value investors to pick it up based on comparable PE and PEG ratios.
Again a personal view is Amazon Exec self interest (aimed at driving their shares ever higher) will mean no profits, just a pure focus on growth.
Addendum- more details from Bloomberg on Amazon activity
Amazon.com Inc. cut the price of its Fire smartphone to 99 cents with a two-year contract through AT&T Inc., seeking to boost adoption of the device six weeks after it went on sale. The phone previously cost $199 through AT&T and comes with 12 months of free membership to Amazon’s Prime fast-delivery and media-streaming service, the Seattle-based company said today in a statement. The plan to use hardware to link consumers ever closer to Amazon, may not have worked this time and if, strategically, they were willing accept 99c pricing, they should have done it at launch when interest was high- now it’s just to dump unsold inventory. The Amazon e-reader is also similarly challenged.
In a different strategic move, last month, Amazon said it would pay $970 million in cash to purchase video-game service Twitch Interactive Inc. in one of its biggest-ever acquisitions. The company last week also announced a new $2 billion credit agreement with Bank of America, indicating its spending plans will continue.