back to article Amazon Reveals One Weird Trick: A Loss On Almost $20bn In Sales

Gigantic retailer Amazon grew sales 23 per cent, year on year, in its second quarter of 2014 – and managed to lose even more money than usual. The e-retailer and cloud giant reported an operating loss of $0.27 per share on Thursday on revenues of $19.34bn for the three-month period, compared with analyst expectations of a loss …

  1. Anonymous Coward
    Anonymous Coward

    Clever...

    An interesting contrast in losses: Amazon - big, imaginary; HP - big, real; Yahoo! - no! one! cares!; Sony - even their losses make losses; Microsoft - cockroaches are eating the cash mound faster and faster.

    1. Trevor_Pott Gold badge

      Re: Clever...

      Actually, Microsoft is making a profit. But they're doing so by taking a page from the HP book; murdering everything good about the company and tactically doing away with products, services and staff with little-to-no regard for the strategic implications. They treat their customers, staff, partners and developers with overt contempt because the only thing that matters to Microsoft's brass right now is quarterly profits.

      There is no strategy at play because the board has vetoed any such thing. the closest they can come is a massive gamble on "the cloud" and "mobile", but that's a sucker's game because you don't win at either of those by alienating your entire customer base and ecosystem. Both require trust, and "mobile" requires some semblance of "cool". Microsoft can't accomplish either while grasping at quarterly numbers with blatant desperation.

      Compare to HP which has just come through that particular looking glass and is now desperately trying to invest in R&D, only to have a huge problem hiring decent talent; it seems nobody wants to work for HP anymore because their name is "mud" amongst the bright and shiny engineers of the world.

      Yahoo! is viciously cutting the deadweight in a desperate attempt to stem the bleeding, but thye have no discernible long-term strategy at all.

      Amazon, OTOH, makes losses for tax purposes. They are investing in massive, massive growth at the expense of profits because their play is "utter market dominance." The goal is to be the only name in the various games they play, so that when the others are beaten back they can turn the knobs, Oracle style, and extract as much revenue as they want.

      Google is doing fine, thankyouverymuch, on the quarterly numbers and so is massively investing in R&D. They plan to become the world's first true megacorp, an American chabol with overtones of Weyland Yutani. They're patient and willing to put the money and research into it.

      Apple have everything they want and seem to have found a balance between researching new products and markets and simply raking in the cash. They have created an aura of customer, partner and staff trust and that allows them to absolutely dominate the consumer market.

      Dell have realised that Wall Street is interested only in slitting it's throat in the quest for quarterly gains and has gone private. The goal here is to reinvest massively in research and completely change the basis of the company. It's a long-term strategic play - and a huge gamble - but if I had spare dollars, I'd bet on Dell. They seem to know what needs to be done and are slowly, but surely setting about doing it.

      IBM is in a bad place. Wall Street is baying for blood and IBM is having to sell itself off a piece at a time to keep them happy. Their R&D occupies a larger and larger % of revenue as they sell off their various tentacles but is demonstrating a fairly flat return. The only hope they have for survival is R&D, but they are unlikely to be allowed to keep it.

      Lenovo looks at all the Americans and shrugs. They'll let the yanks bear the R&D costs, deal with Wall Street. They don't have the concerns the other do and so they have decided to do one thing, and do it well: sell as many widgets as possible as cheaply as possible. Since everyone else is abandoning the "selling commodity tangible widgets" game, Lenovo just sits on top of a pile of money grinning like a Chesire cat. The mass market belongs to them and they know it. Given this, they are investing in acquisitions and starting up proper R&D in order to plan for the future. Eventually, someone will make widgets cheaper than they can. They intend to be ready.

      So none of these companies really directly compare to one another. They are all trapped with different problems and have different approaches and hurdles to overcome.

      1. Gene Cash Silver badge

        Re: Clever...

        Damn nice summary. I regret that I have only one life upvote to give...

        1. Trevor_Pott Gold badge

          Re: Clever...

          My life for Aiur!

          1. Robert Grant

            Re: Clever...

            My life for Aiur!

            Oh, now I have to go and install that.

      2. Mark 85 Silver badge

        Re: Clever...

        Right now, the only one that looks like it has future, is as you pointed out, Dell. Everyone else is beholden to the stock market and the...hnnn... let's say "corporate investors" who can carry some clout with the board. Dell's board, since they've gone private, seems to betting the farm and their future wealth on the strategy. Let's face it, without R&D and giving a crap about the customer (enterprise and non-enterprise) is the only way any company can remain a player. The rest will become chaff in the wind.

        1. localzuk

          Re: Clever...

          A good summary there. A lot of it can be further summarised down to "the stock market doesn't want long term returns, they want returns right now". Its the ultimate in short-termism.

      3. Anonymous Coward
        Anonymous Coward

        Re: Clever...

        Hmm. It seems to me that Microsoft are making more money than any company in the tech industry at the moment, with the exception of Apple.

        They are in clear second place in the cloud space, and rapidly catching up with AWS.

        Their strategy makes perfect sense to me. It is to provide platforms and productivity solutions. They expect these soltions to be delivered from the cloud to mobile users.

        You should not let your dislike of MS ditract you from tge fact that they are doing really well at the moment Trevor.....

        1. Trevor_Pott Gold badge

          Re: Clever...

          Oh, I don't. But unlike certain anonymous cowards, I don't drop my pants and cream for England every time I think of the Beast of Redmond. Microsoft is not doing particularly well. They've kept their EPS relatively flat, but only with sacrifice. They've had to murder everything good about the company and have put concerted effort into pissing off customers, partners, developers and staff.

          Being "second in the cloud space" means fuck all. They are a distant second, when compared to AWS, and that cloud revenue is still fractional compared to what Microsoft was making on it's traditional markets. Markets that it is busy ceding to Apple and Google, I might add.

          So let me be perfectly clear, Anonymous Coward, what I think about you and the fact that you perpetually fellate Microsoft using lies, damned lies, twisted facts and outright fabrications: I think you truly are a coward. I think you're the lowest kind of scum on earth because you won't even put your name to your comments, and yet you actively try to hoodwink and bamboozle good people on a regular basis. I think you're a vile, despicable, horrible person and I hope a lot of very, very horrible things happen to you. Anonymously. Over and over.

          If you are going to lie repeatedly at people, put your fucking name to it so that we can choke you with proof of the fallacy of your words. Sitting in the shadows whispering sweet nothings about your corporate crush makes you worse than a marketing shill. I work with marking shill every day, and they at least tell you their goddamned name.

          Now get the hell off my internet, you honourless bastard.

          1. dan1980

            Re: Clever...

            @Trevor_Pott

            "[Microsoft] have put concerted effort into pissing off customers, partners, developers and staff."

            Ha ha! Yes, that is probably the way to phrase it; the level of animosity they have built up simply cannot be accrued by carelessness or stupidity.

            What MS have done is to let their desired business model drive their products. That's perfectly fine. And, when your business model is to provide innovative products or be at the forefront of customer service or technology or whatever then you can have a great relationship with your clients.

            When your business model is (as stated) "something, something cloud; something something mobile", it tends not to work so well. Even less so if you pair that with a financial imperative to make as much money via subscription revenue as possible.

            MS are not lacking talent and I still hold a torch for them - there is such a wealth of smarts and good engineering in many of their products that I often have to sit back and say "wow - that's cool", but more and more of that is sacrificed with each new release to better align with their all-consuming drive for juicy monthly income.

            The thing that always set MS apart for me was not one achievement or perfect facet but instead the finely-tuned marriage of user functionality and customisability with administrator control, all managed by a fairly easy to use and (for the most part) logical and intuitive GUI. Once 2008/R2 and the associated server applications came through, you also had a very powerful command line and scripting solution too.

            Like I said, I still carry a torch for them (unlike Trevor!) which is why their current focus on fucking over the user in pursuit of recurring monthly revenues upsets me so much.

            1. Trevor_Pott Gold badge

              Re: Clever...

              As recently as two years ago I was still a fanboy, at least of their server team. I still worship Jose Barreto and his gaggle of gangsta goons. But great minds and great technology cannot overcome the overwhelming douchiness of management decisions.

              You could have Elon goddamn Musk working in the server team and it still wouldn't make a difference unless they let him set policy. (At which point Microsoft would go from 0 to hero in about 0.0000001 picoseconds.)

              So that's where we are. I love a lot of the folks that work there. I think they make some great tech. But I cannot condone their actions or choices. They are simply dishonorable. Not trustworthy. I'll gladly use technology from a vendor that doesn't have as many great minds, or products quite as advanced if I can place just that little bit more truth in that vendor. If there is a relationship to be built.

              But like hell am I going to accept a relationship with a vendor - any vendor - in which my part of the relationship is "subject of $vendor". I am nobody's subject.

  2. Anonymous Coward
    Anonymous Coward

    Pay no taxes post no profits

    Is it any wonder they're able to undercut (and in due course, eliminate) much of their retail competition?

    "Don't it always seem to go. That you don't know what you've got. Till it's gone"

    Shop wisely, readers.

    1. Anonymous Coward
      Anonymous Coward

      Re: Pay no taxes post no profits

      "Shop wisely, readers."

      More like "Strategise wisely, Bezos."

      Running persistent losses in retail, and then engaging in tax avoidance might be part of a grand scheme to build a dominant position, but it hasn't won Amazon any friends. With something approaching dominance in online retailing, how long before somebody (most likely the European Commission) decide that Amazon's retail strategy amounts to abusive practice?

      The French establishment already hate Amazon. I suspect the other European liberal and left parties hate Amazon or are easily persuadable (over tax avoidance, labour relations, NSA integration of AWS, for treading on smaller companies, concerns over music and rights licensing, and for simply being American). And whilst Amazon have deep pockets for lobbying, so do Google, who definitely want a bigger share of content sales. The need of most governments to raise more tax means that busting-up online retailing helps - it is probably easier to have a market review that then create conditions for new (they hope) local entrants who don't have the scale and scope for global tax evasion than to tackle Amazon directly on its dubious, but claimed to be legal tax arrangements.

      The link below I believe refers to US sales, but there's plenty of other evidence that suggests the position in Europe is very similar:

      http://www.theregister.co.uk/2013/08/30/amazon_dot_com_holds_ludicrous_lead_in_online_retail_sales/

      1. Phil O'Sophical Silver badge

        Re: Pay no taxes post no profits

        The French establishment already hate Amazon.

        True, but that's because it's not French, and is successful. Of course, if Amazon was French it would have been strangled by red tape and taxes, and wouldn't be successful anyway.

        1. Peter Simpson 1
          Happy

          Re: Pay no taxes post no profits

          You forgot...and ship nothing during the month of August.

  3. El Limerino

    Headcount growth reduces revenue?

    I don't get it. How can headcount growth in AWS account for the decline in AWS revenue? Revenue is revenue, regardless of headcount.

    I suspect that AWS has felt, for the first time, the impact of strong competition.

    1. gerdesj Silver badge

      Re: Headcount growth reduces revenue?

      > Revenue is revenue, regardless of headcount.

      Aah - you assume that they account in the same way as you or I do (I am a partner in a small business). Perhaps in the rarefied atmosphere they inhabit it is possible to consider the wage bill as a sort of negative revenue.

      Or someone needs to reread the article.

      Cheers

      Jon

      1. JackClark

        Re: Headcount growth reduces revenue?

        It was the latter - we've changed the line to state AWS may be affecting overall profitability. Thanks for spotting our accidental conjunction of AWS hiring with revenue slowdown.

        My view: this is what competition looks like!

  4. Donald Becker

    I don't know how Amazon continue to lose money on their, uhmm, "traditional" business.

    A few years ago there were great deals to be had: auto parts and hardware at wholesale, food at supermarket prices, and Prime was free half the time.

    Now prices are up to retail plus shipping cost, Prime is rarely free, and Prime doesn't get free shipping on the most popular items. 'Add on' items require a $25 base purchase and 'Prime Pantry' items have a $7 shipping fee.

    One feature that was added was Netflix-like free movies. I actually keep Prime just to watch the occasional movie, but even there the selection is modest and about half of movies I had on my watch list have been dropped from the free Prime selection. It's a fair value for the price, but my use definitely isn't costing them much.

  5. paulf Silver badge
    WTF?

    Amazon seller europe - verification

    I have an Amazon seller account and have used it a handful of times to sell stuff I don't want any more. It's easier than eBay and saves me dealing with the hurt that is eBay/Paypal.

    In the last month or so they've been demanding I verify my identity otherwise I'll no longer be able to sell through Amazon any more. I'm a private individual (not a business or sole trader) so this seemed overkill and it's hardly like I "turn over" much (£40 this year and before that, nothing since 2008).

    The usual bogeyman of "New EU rules on identity" were quietly cited in emails/FAQs.

    I looked at the verification process and although it demanded a VAT number I managed to get past that step without entering one (I'm not a trader so no VAT number). Then it wanted to verify my bank account with a small payment like Paypal do - fair enough but they've paid money in to it before. Then it wanted my passport details and a bank statement or utility bill. You what???

    I can understand checking the identity of traders but demanding (and verifying) passport details from private individuals when Amazon already have my home address, bank account + Credit card details is overkill. Anyway the latter two have already verified my identity and they've been registered with Amazon for years.

    Someone mentioned to me this is to do with their Luxembourg tax shenanigans. If they can prove the income is generated by someone in a particular country it helps their tax position (in ways I can only imagine) as opposed to just paying tax at a blanket rate on their entire income in Europe. I've not seen any articles or investigation about this - apologies if I've missed a suitable story.

    Considering the usual (and justified) vociferous comments about Amazon's tax free MO I'm surprised this seems to have slipped under the radar.

    1. Anonymous Coward
      Anonymous Coward

      Re: Amazon seller europe - verification

      "Then it wanted my passport details and a bank statement or utility bill. You what???"

      Given the list you provide, this smells more like broad data scooping on the behalf of somebody else than like tax compliance data.

      Considering that the NSA and GCHQ are now as welcome in most of Europe a dose of the squits, it might be more difficult to snoop all these details directly from banks and utility companies. Why not get a nice friendly company (and one with a nice symbiotic relationship with the US government) to collect intrusive levels of detail like this? Between Ebay, Paypal, Amazon, Google, Microsoft et al, they can harvest vast amounts of detail on the majority of foreign nationals.

      1. fandom

        Re: Amazon seller europe - verification

        Why would a government need help to know about your government-issued passport?

        1. Michael Jecks

          Re: Amazon seller europe - verification

          The US government could well be interested in my UK passport details. Or any other English, French, Irish, Italian etc passport holders.

      2. paulf Silver badge
        Big Brother

        Re: Amazon seller europe - verification @Ledswinger

        I agree it is a rather broad and deep data slurp. There were several places where they said something like "We appreciate you trusting us with this information" (I didn't in the end!) but with thicker corporate speak applied.

        While the national Gubbermint can find out my passport details other Gubbermints may not be able to, so that might explain to @fandom why this is plausible.

        That said why is it only Amazon doing this? If it was an Uncle Sam mandated NSA data slurp surely all USA $MEGACORPS would be doing it? There are arguments each way but claiming its "all the EU and their business harming regulations" doesn't wash when it's only one of them implementing them. I know I've never had to give this kind of verification on my Paypal account and Paypal are near Bank like (but not quite).

        As Amazon's stinky tax affairs are well known, along with the lengths they go to on the implementation, I'm still inclined to think that is the reason (that doesn't mean your theory isn't right at the same time).

  6. Sirius Lee

    Jack, Jack, Jack, you're doing it again

    Have you had an accountant, economist or MBA look over the 10Q?

    Amazon is doing a great job of managing it's assets - just like investors will expect. The purpose of Amazon is not to make money because that's just a taxable amount - and who wants to pay more to the government than is absolutely necessary. The job of Amazon is to make money for its stakeholders. Shareholders are stakeholders but the ones with the least claim to the assets of the company. Management and employees are another stakeholder group but the largest group are its huge army of vendors.

    Amazon's financial wizards have made sure the company made a loss of $126m which to you and me sounds a lot. But on sales of nearly $20bn that's just 0.6%. Imagine that, needing to make a loss and doing so with that precision. Maybe you do but I can't drive my car with that accuracy never mind a company of that size. The complaint really is that the accuracy it's not as good as the extremely good $7m loss in earlier quarters. But don't forget losses now mean tax offsets in future years.

    You can see from the 10Q this is managed loss. The company's cash holdings have been reduced from 8.7bn to 5bn which happens to almost exactly match the increase in sales over the same period. The profile of the cash inflows and outflows does not show a 1:1 correspondence but it is the net effect. What Amazon has done in the quarter is pay a lot people reducing its accounts payable to the tune of $4.5bn over the quarter. Who has been the recipient of this largess? That's not itemized but it is a lot of money going into the economy. The justification in the notes is: "shorter payable and longer receivable cycles and the resultant negative impact on cash flow".

    I think you should be celebrating Amazon not be trying to denigrate it.

    Oh, and by the way, the after hours slump takes the share price back to where it was two weeks ago. Big deal. Clearly there were some over optimistic types betting on Amazon in the last couple of weeks, bets which will not pay off this week. But stock price go down as well as up. Let's see where it is next week.

    1. Anonymous Coward
      Anonymous Coward

      Re: Jack, Jack, Jack, you're doing it again

      Peter Schiff, the only guy that accurately predicted the financial crash of 2008 way back in 2003, says that inflation is eating Amazon alive, that their business model is badly flawed, and that they will be forced to raise their prices soon.

      Now then, if you actually believe the United States government's claims about there being no inflation and that the Federal Reserve Bank is targeting 2% per annum, then you need to visit this site: http://www.shadowstats.com/

      They compute the CPI the way it was done back when Jimmy Carter was in the White House.

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