Written by Felix Richter, Statista.com
— this post authored by Felix Richter with added analysis by Econintersect.
If there is one thing that Amazon’s founder and CEO Jeff Bezos is famous for, it’s his relentless focus on long-term growth.
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Having ignored critics for years, Bezos’ willingness to sacrifice short-term profits for long-term success appears to be bearing fruit.
Not only has Amazon cemented its position as the leading online retailer in large parts of the world, it has also built an industry-leading cloud computing business, established itself as a major player in music and video streaming and built an impressive lead in the booming smart speaker market.
The company has achieved all that by constantly re-investing most of the money it earns. In the past twelve months, Amazon’s net income amounted to $3.03 billion. While that is its biggest annual profit by far, it still looks miniscule compared to the company’s revenue of nearly $180 billion. Our chart below illustrates Amazon’s strategy by contrasting the company’s explosive long-term revenue growth to its relatively modest profit growth.
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Note added by Econintersect: The chart below from Investing.com shows the price history for Amazon (NASDAQ:AMZN). From the split-adjusted market close of 1.50 on the first day of trading 06 January 1998, the price of Amazon stock has risen 102,900%. In 2004 the averge of the closing prices for each month was $40, so the price appreciation since the beginning of 2004 has been 37,590%.
Statista has reported the annual revenue each year from 2004 through 2017:
Revenues and Profits has reported revenues back to 1995:
Revenue growth from the beginning of 2004 through the end of 2017 was 3,380% (about 1/10 of the share price gain). Revenue growth froom the beginning of 1998 through 2017 was 119,400%% (nearly 1.2x the share price gain).
The revenue growth to market value growth may not have a tight correlation, but the relationship is still much closer than the totally uncorrelated net profits and share price: Amazon has lost money about half the time, graphic from Revenues and Profits.
Moral of the story: Rapidly growing revenues can be much more important than profitability. There is a caveat, though: The company must eventually become pofitable or it is nothing more than a Ponzi scheme.