Tuesday , September 27 2022

Amazon is not too worried



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Yesterday Jeff Bezos said at a meeting with all his hands Amazon, "Amazon is not too big to fail … Actually, I predicted that one day Amazon will ruin. Amazon will go bankrupt. If you look at large companies, their lifetime tends to be 30-plus years, not hundreds of years. "

There are several reasons why he is right. As one retail investor told me: "the nature of all retail companies is to eventually bankrupt." Of course, this is a cynical point of view, but it reflects reality: retail goes through the cycle. Some types of traders become popular, then they do not adapt, their businesses are falling and eventually disappearing. We see it again and again, retailers who can change are exceptions not a rule. Retailers do not only sell fashion products, but themselves. Their jobs are gaining popularity in cycles. Investors often believe that a trader who can capture a trend can catch many trends, but history says that this is usually not true.

But Amazon is now the second largest retailer in the United States, how is it possible that something might be gone? Of course, it's possible to lose touch with your clients, but this seems unlikely for Amazon, that's one thing and it's so well known for being hyperfocused. So how could this happen? There is a scenario that is really true for Amazon.

It is known that Amazon does not estimate profitability. If so, the price of the action would be a small part of what is now. Amazon has done an incredible job on so many incredible things, and one of these things is to attract the company in financial markets based on revenue growth, assuming profitability will come later. Amazon is explaining that it uses what kind of profits it invests in new ideas and experiments to stay ahead and that its reported profit was low. So far, the market has accepted Amazon's explanation, and the company's valuation metric was based more on revenue growth than profit growth. The people I'm talking with say that as long as Amazon continues to grow its revenue by 20-25% per year, the market will impute the future profitability of the company and the stock price will continue to grow.

For more than 100 years before it was bankrupt, Sears had everything for everyone and he successfully adapted to what his customers wanted. So far Amazon has been great at that. He did not try to be better in retail than people who have been able to sell in retail for a long time, have mastered the skills that were not considered as retail skills at all. Amazon has strangled logistics and technology, things that have not previously been key drivers in retail, to offer consumers better value. It is important, as he developed resources internally, Amazon has turned some of them into business, for example Amazon Web Serviceswhich today makes more money than the rest of Amazon together.

But as Amazon strikes over $ 200 billion in revenue, it's harder to find revenue sources that will have an impact on revenue growth. For example, you can not, for example, double the number of subscribers in the country, there are not enough households for it, saturation is too much for that already. It is necessary to find new sectors to be online, as they did in books many years ago. New industries are needed, such as the food industry, healthcare, banking or cars, which have relatively low penetration on the net and potential for conversion to online sales to maintain revenue growth. The point is that it's hard and not safe. Amazon has owned Vhole Foods for over a year, and it is assumed that the conversion to the Internet does not occur, at least until now.

If Amazon does not find new sources of revenue growth in other industries, its expansion will slow down. Given that the stock price has been so influenced by revenue growth, it will not continue to grow. This is the key to Amazon more than for most companies, as many mid-sized and high-level employees are encouraged by the company's actions. An important part of their compensation, more than for most other companies, is based on the price increase of shares. If this stops, Amazon employees who are now very interested in other companies will be more susceptible to other offers than ever before. When they start to abandon stagnation in stock prices, it will make Amazon harder to replace them, and the whole wheel can stop spinning in a hurry.

You can say that Amazon is too much of everyday habits of people to make it disappear. This is true for some time, but when the company loses its best people, the ability to innovate is still going away and not long before it is taken over.

For companies that used Amazon's head-to-head competitions it was a very difficult time. Amazon's ability to access capital, regardless of profit combined with its ability to hire the best people, has allowed it to dominate the industry. But Bezos is right and nothing is happening forever. The place for Amazon can be very far away, who knows. But that may not. 2018 is dressed as a great year for the US economy. You just do not have to be so good in such environments as you do when the time is more difficult. When years come, will Amazon be able to sustain its growth and will financial markets be futile? For how long the circumstances will continue to harmonize with Amazon, there was speculation, but this is not for ever.

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Yesterday Jeff Bezos said at a festive meeting in Amazon, "Amazon is not too big to fail … Actually, I predicted that one day Amazon will ruin. Amazon will go bankrupt. If you look at large companies, their lifetime lasts for 30 years and no more than a hundred years. "

There are several reasons why he is right. As one retail investor told me: "The nature of all retail companies is to eventually bankrupt." Of course, this is a cynical point of view, but it reflects reality: retail goes through the cycle. Some types of traders become popular, then they do not adapt, their businesses are falling and eventually disappearing. We see it again and again, retailers who can change are exceptions not a rule. Retailers do not only sell fashion products, but themselves. Their jobs are gaining popularity in cycles. Investors often believe that a trader who can capture a trend can catch many trends, but history says that this is usually not true.

But Amazon is now the second largest retailer in the United States, how is it possible that something might be gone? Of course, it's possible to lose touch with your customers, but this seems unlikely for Amazon, that's one thing that is known for being hyperfocused. So how could this happen? There is a scenario that is really true for Amazon.

It is known that Amazon does not estimate profitability. If so, the price of the action would be a small part of what is now. Amazon has done an incredible job on so many incredible things, and one of these things is to attract the company in financial markets based on revenue growth, assuming profitability will come later. Amazon is explaining that it uses what kind of profits it invests in new ideas and experiments to stay ahead and that its reported profit was low. So far, the market has accepted Amazon's explanation, and the company's valuation metric was based more on revenue growth than profit growth. The people I'm talking with say that as long as Amazon continues to grow its revenue by 20-25% per year, the market will impute the future profitability of the company and the stock price will continue to grow.

For more than 100 years before it was bankrupt, Sears had everything for everyone and successfully adapted to what his customers wanted. So far Amazon has been great at that. He did not try to be better in retail than people who have been able to sell in retail for a long time, have mastered the skills that were not considered as retail skills at all. Amazon has strangled logistics and technology, things that have not previously been key drivers in retail, to offer consumers better value. It's important, since he developed resources internally, Amazon has turned some of them into business, such as Amazon Web Services, which makes more money today than the rest of Amazon together.

But as Amazon strikes over $ 200 billion in revenue, it's harder to find revenue sources that will have an impact on revenue growth. For example, you can not, for example, double the number of subscribers in the country, there are not enough households for it, saturation is too much for that already. It is necessary to find new sectors to be online, as they did in books many years ago. New industries are needed, such as the food industry, healthcare, banking or cars, which have relatively low penetration on the net and potential for conversion to online sales to maintain revenue growth. The point is that it's hard and not safe. Amazon has owned Vhole Foods for over a year, and it is assumed that the conversion to the Internet does not occur, at least until now.

If Amazon does not find new sources of revenue growth in other industries, its expansion will slow down. Given that the stock price has been so influenced by revenue growth, it will not continue to grow. This is the key to Amazon more than for most companies, as many mid-sized and high-level employees are encouraged by the company's actions. An important part of their compensation, more than for most other companies, is based on the price increase of shares. If this stops, Amazon employees who are now very interested in other companies will be more susceptible to other offers than ever before. When they start to abandon stagnation in stock prices, it will make Amazon harder to replace them, and the whole wheel can stop spinning in a hurry.

You can say that Amazon is too much of everyday habits of people to make it disappear. This is true for some time, but when the company loses its best people, the ability to innovate is still going away and not long before it is taken over.

For companies that used Amazon's head-to-head competitions it was a very difficult time. Amazon's ability to access capital, regardless of profit combined with its ability to hire the best people, has allowed it to dominate the industry. But Bezos is right and nothing is happening forever. The place for Amazon can be very far away, who knows. But that may not. 2018 is dressed as a great year for the US economy. You just do not have to be so good in such environments as you do when the time is more difficult. When years come, will Amazon be able to sustain its growth and will financial markets be futile? For how long the circumstances will continue to harmonize with Amazon, there was speculation, but this is not for ever.

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