This is the Most Self-Explanatory, Ridiculously Clear Chart About Amazon I’ve Ever Seen

What’s wrong with Amazon? Here it is, the most self-explanatory and ridiculously clear chart that simply says it all:

Black Line: Endlessly soaring, totally out-of-whack, no-holds-barred, damn-the-torpedoes-full-steam-ahead operating expenses designed to demolish competitors that have their hands cuffed behind their backs by the requirement that they watch their expenses and keep them in line with revenues so that they can make a profit long-term and stay in business and make investors happy.

Green Line: Strongly rising revenues…. Alas, they’re not rising as fast as expenses, not nearly as fast. For every dollar spent, Amazon is getting less revenues as time goes on. Amazon’s spending model is becoming more wasteful, in terms of its impact on revenues. This is a business model for self-destruction, as normal businesses tend to find out because investors will sooner or later pull the plug. But apparently not Amazon investors. Amazon is directly plugged into the Wall Street hype machine, and investors can’t seem to unplug it.

Red Line: All of which translates into terrible operating income (or losses), year after year after year. This quarter’s loss was the worst in 14 years. It was ten times worse than last year. And there is no turnaround in sight.

Blue Line: But investors close their eyes and hold their noses and buy the shares anyway, and the stock soared. Until February. Plugged into the above mentioned Wall Street Hype machine, it has become – and has always been, except for a brief period after the 2000 crash when AMZN was trading in the single digits – completely independent of Amazon’s loss-plagued reality.

Thursday in after-hour trading, Amazon got crushed and traded down 12% for part of the time. Then the Wall Street hype machine started picking up steam, and on Friday it was down “only” 8.3%.

But here’s the thing: AMZN was a leading indicator of total investor exasperation when it started to crash in December 1999, three months ahead of the rest of the Nasdaq. Now, with today’s plunge, it’s down 30% from its February high. Read…. Amazon, the Leading Indicator?

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  9 comments for “This is the Most Self-Explanatory, Ridiculously Clear Chart About Amazon I’ve Ever Seen

  1. Vespa P200E
    Oct 24, 2014 at 12:58 pm

    Hi Wolf,

    You should also insert a chart from ZH showing Jeff Bezos “Value Creation” Edition where “in all of its 20+ year history, Amazon has generated under $2 billion in Net Income. The offset? Jeff Bezos’ net worth, which according to Bloomberg is about $30 billion”.

    So I get it now – it’s all out largest shareholders as no doubt Bozo Bezos has printed millions of AMZN stock certs for himself.

    • Allan
      Oct 24, 2014 at 5:35 pm

      Hype an idea, inflate it, keep hyping, gradually sell your pile of stock to the fools on wall street who were conned. Done.

  2. Archy Don
    Oct 25, 2014 at 9:04 am

    Oops.

    If I see the chart correctly, looks like the holiday season (Christmas) has been their heyday.

    This year should be telling.

    • Oct 26, 2014 at 3:51 pm

      True. The holiday season is what every retailer lives for. That’s why it was shocking to some people when Amazon gave a profit guidance that included a big loss for Q4. And even at its optimistic upper end, it would not turn the loss YTD into a profit. That’s a really crummy prospect.

  3. Joe
    Oct 25, 2014 at 9:41 am

    I am on Amazon DVD monthly rental service.

    It used to be LoveFilm until Amazon bought the company. The package I was with LoveFilm was light use which is 4 DVDs by post per month including unlimited streaming on movies. The online movie selection is okay, not all blockbuster movies. The package costs £8.99 per month (about US$ 14.5).

    After Amazon bought LoveFilm, Amazon continues the service but they bring up Amazon Prime. However, you can have streaming and DVD rentals services separately. Since I live in a village area, the broadband speed is rubbish and only some type of movies I like. Therefore, I cancel the streaming service and keep the DVD rental. When I look at my bill, I am pretty shock. For renting 4 DVDs per month, they only charge me: £2.69 (about US$ 4.33). That is crazy price, as you can see why their operating expense is sky high.

    However, if Amazon (the mega mammoth) decides to bring up their price, I think a lot of other retailers will follow suit.

  4. NY Geezer
    Oct 25, 2014 at 9:43 am

    Amazon.com’s (AMZN) non profit model is the one that has worked for it. It has enabled the company to become the behemoth of online retailers.

    I buy from AMZN for 2 reasons in addition to the fact that it is effortless: 1) it almost always has the items I seek; and 2) its prices are generally as cheap as or cheaper than its competitors.

    Because the items for sale are packaged commodities that do not vary in quality, price is very important. If AMZN raised its prices to make a profit and others did not I would purchase from AMZN’s cheaper competitors.

    In my view AMZN has a dilemma. If it continues to sell many items at the cheapest prices it will retain and expand its customer base. If not, its customer base will shrink. As its customer base is the is the foundation of its stock value it has no choice here.

  5. Stan Muse
    Oct 26, 2014 at 7:46 am

    Another perspective: they reinvest profits from profitable business lines into new ones:

    http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-profits-and-why-it-works

    • NY Geezer
      Oct 26, 2014 at 10:37 am

      The linked article is consistent with my view.
      “Bezos is deferring that profit-producing, investor-rewarding day almost indefinitely into the future (while he is) building a company, with all the cash he can get his hands on, to capture a larger and larger share of the future of commerce .”
      “The question to ask isn’t whether Amazon is some profitless ponzi scheme, but whether you believe Bezos can capture the future. That, and how long are you willing to wait?”

      From the perspective of this customer, I expect that investors should be willing to wait forever.

  6. dan
    Oct 26, 2014 at 8:15 am

    AMAZON is planning for the ‘long term’…not like other companies who only survive with ‘political connections’….and contracts from a government entity…….they break the mold and employee people as needed who by the way DO NOT work for the government at tax payers expense….imho

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