I know. What? How is it possible that the company everybody buys everything from and is seemingly everywhere, has not posted a profit after almost 20 years in business? Business writer Daniel Gross has the amazing but true spooky Halloween story of the amazing world dominating company that makes no money and yet makes people rich.
Historically speaking, it is rare for a company to be in hypergrowth mode when it is nearly 20 years old and has annual sales of about $65 billion. That’s why investors love Amazon. But historically speaking, it’s also very rare for a company that has been around for 20 years—large or small—not to make money, to run on margins so thin that they can easily be eaten up by interest cost, or capital expenditures, or the loss of value in an investment like Living Social. (Amazon.com had to write down its investment in the daily deal company by $169 million in the most recent quarter.)
How odd is it for a historically great company to be uncontaminated by profit?
One thing many of the historically great companies share is reliable, decent operating margins. By the 1920s, 20 years after Henry Ford founded the Ford Motor Company, Ford was racking up profits of about $90 million per year. Between 1893 and 1901, John D. Rockefeller’s Standard Oil threw off $250 million in dividends alone. The company was so profitable that Rockefeller didn’t know what to do with the profits and was forced to invent modern philanthropy just to get rid of it…
Intel was founded in 1968 and operated in a highly competitive, capital intensive industry. Yet in 1988, Intel earned $452.9 million on $2.87 billion in revenues—a fat 16 percent profit margin. The first Walmart opened in 1962. In 1982, 20 years into its life, Walmart had sales of $2.4 billion and profits of $55.7 million, a razor-thin 2.5 percent margin but a profit nonetheless.
What Amazon investors are counting on is the sort of “insane growth” that Walmart had in its second 20 years that gave it 10% of all retailing in the U.S. Amazon is investing billions in its own infrastructure in order to reap the expected benefits of world domination. But Gross asks a good question: given how fickle consumers are, what if the next Amazon has already started somewhere and is ready to come along and undercut Amazon?
I just ordered an egg and cheese sandwich on Amazon. I should probably just go to a restaurant and get it fresh, but then I’d have to put my pants on like a sucker.