Why Amazon has no profits?

The Amazon being the giant company with lot of potential has no profit in their books of accounts. In this blog we will try to solve this mystery.

Growing and Expanding are the key factor for the development of companies. There are different way they expand and grow.

what make difference between best and good is the way they grow and expand in the competitive world.

Amazon has launched 20 years ago but it still hasn’t reported significant profit. There are three major segment media, electronics & general merchandise, which is mostly AWS. The major driver of revenue in the past years was the general merchandise segment for both North America & internationally.

Amazon is a bundle, prime membership which provides many special services to the member which helps in shifting customers buying to amazon from other online stores or offline stores.

• There are many third-party companies which sell their products through amazons’ website which contributes 40% of unit sold & fees charged by amazon is 20% of revenue to these vendors.
• Amazon only recognises revenue from services it provides to those companies.
• For example, if amazon sells mobile on its website from a third party it will not recognise the whole value of mobile as revenue but only the shipping & payment cost as revenue.
• Amazon has dozens of separate teams which run separate businesses some of them are mature & profitable some new start-up which is loss-making.
• Amazon always tries to nullify the losses & profits to make net P&L zero or as close as possible.
• Judging amazon net income metric is a bad way. We should take a look at the FCF(Free Cash Flow) & OCF(Other Cash Flow) amazon sells at low prices so the OCF is mainly stable but FCF decreases because of high Capex.
• Amazon is investing all the profits in other business to grow its pool of operating cash flow in future.
• Amazon has 1% of the US retail market by value. So should amazon enter into a new category & market or take profits out./li>

In Jeff Bezos’s view, he will keep investing until he sees growth opportunity in the business.

CAPEX TO SALES RATIO.

What amazon earn makes sure it is reinvested & make net profit zero. it is very necessary to do so for amazon to create a very large user base.

Making it simple the amazon business model is just like the Mutual Fund scheme which is reinvesting. Here the profit is reinvested in the business for the growth.