Amazon announced higher revenue today but sharply lower profits. Investors don't seem to care much: Amazon shares closed down a bit on the news, but as I write this they've already made up all of the loss and then some in after-hours trading. Matt Yglesias is amazed:
Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus. Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don't even buy anything from Amazon.
It's a marvel, all right. The general idea, as near as I can tell, is that Amazon will build up lots of brand loyalty and will eventually be able to raise prices a bit without losing its customers. Maybe. I suppose I'd probably be willing to pay a slight premium to buy something on Amazon if my only alternative were an outfit I didn't know anything about. (Or if I'd gotten some Amazon gift cards for Christmas, which I did.) So maybe they'll eventually be able to pull this off. The problem is that, increasingly, their competition won't be small e-retailers I've never heard of, but a handful of fellow giants who all have good reputations, good service, low prices, and easy checkout. That's a tough space to make a profit in.
I suppose it's also possible that selling actual stuff will merely be a loss leader for the Amazon services that make money in the future: remote storage, cloud computing, rakeoffs from Amazon affiliates, etc. Maybe maybe maybe. Still, my daddy taught me that a P/E of 3,479 was just a wee bit optimistic. I think I'll stick to the craps tables in Vegas. The odds are better.