“Shareholder returns” has the been the mantra for the modern manager – particularly when justifying fat salaries and bonuses.
Amazon though is very different – despite the company’s massive market position it doesn’t make profits, founder Jeff Bezos claims he prefers to focus on customer needs.
On a fundamental level Bezos is right – the business that delivers what customers want will succeed. The market doesn’t give a fig about shareholders’ returns or management’s KPIs.
Although making a profit is helpful.
That Amazon is spectacularly unprofitable should worry shareholders, it’s fair enough for a startup in its early days to incur losses but Bezos’ baby is nearly 20 years old and it still isn’t capable of walking on its own.
Yet this doesn’t deter shareholders. Comparing Amazon’s stock price against Apple’s and Microsoft’s is instructive.
Microsoft currently trades at a Price/Earnings ratio of 15.8 while Apple’s is 9.7 – Amazon trades at an infinite P/E.
A school of thought is that Amazon will reap monopoly profits once it conquers the world’s online retail and owns a big chunk of the cloud computing market.
However these are big markets and its unlikely any one company can ever dominate them. Indeed Amazon has failed to do so for nearly two decades despite undercutting most competitors and buying out nimble new rivals.
It’s tempting to think of Jeff Bezos being a modern day Nelson Bunker Hunt.
Bunker Hunt and his brother William spent most of the 1970s trying to corner the global silver market. At the peak of their attempt, silver prices went from $11 an ounce in September 1979 to $50 an ounce in January 1980 only to crash back down to $11 by Easter 1980.
The brothers were bankrupt by the end of the 1980s.
It’s doubtful whether Amazon’s shareholders want to follow that example, so it’s going to be interesting to see how long Jeff Bezos can continue to see the story of putting customers before owners.
Image by By The Cuba Company, New Jersey [Public domain], via Wikimedia Commons