Is the whole gist of this article basically, "start with your fixed cost business model and reinvest all proceeds into growth and scale"? What else am I missing?
They bury the important point halfway through the article: Amazon is a free-cash-flow machine and it has almost always been so. The distinction is subtle [1], but consistent (and ideally ever-growing) free-cash-flow is what really matters in valuing a highly capitalized company, even if the firm has always re-invested it each quarter to date. The important point to investors is that the firm's re-investment is a decision -- the company is not brittle to economic downturn and any quarter could decide to payout investors through share buyback etc.
Copious free-cash-flow every quarter is why software companies generally have higher valuations than traditional industries and why it was novel that Amazon, which is not obviously a software company, behaves as one financially.
> any quarter could decide to payout investors through share buyback etc.
Your etc. is layoffs. In this example, the "free-cash-flow" is people's salaries. I'm not personally comfortable with it being considered such a liquid asset.
> Your etc. is layoffs. In this example, the "free-cash-flow" is people's salaries. I'm not personally comfortable with it being considered such a liquid asset.
It’s almost certainly, in the case of Amazon, data centers and fulfillment centers and trucks and planes and heavy equipment.
Unfortunately, you are probably viewed as a liquid asset by your management.
For the record, I wasn't justifying the world that has created these incentives. In order to understand (maybe even someday change) the rottenness of the world, it's important to avoid the sort of reasoning that the OP critiques, which sees everything as just a sort of arbitrary maliciousness, rather than understanding the very concrete institutional mechanisms by which it has perversely become 'rational' to view everything outside a few profit centers as a 'liquid asset.' If a firm doesn't generate free-cash-flow, which is very very difficult outside the software industry, it will not receive significant capital investment and will be dependent on debt/profits. This impacts not just the life of employees, but limits what endeavors are funded at all, i.e. in part why it is that "software is eating the world." How to change those incentives is a much more difficult, but real problem.
Anything capital intensive. Telecom was a good example. Oil & gas (they often have dividends tho) , real estate, anything that is a PE target, really every company though since we are living in a "post P/E" world
This business model was made famous by cable companies. They’d undergo expensive built-out to be the cable provider in a town, then benefit from a continuous subscription revenue for literally decades.
You're missing the strategic focus on long-term unit economics and customer lifetime value, where Amazon prioritizes sustainable margin structures within each business unit while accepting delayed profitability at the consolidated level.
