James Joyner muses over Amazon’s ability to maintain a high profile, high stock price, and vast riches for its owners and top management while barely showing a profit:
At the end of the day, then, does it really matter if a company makes a “profit” if its founder has gotten rich, its senior executives are making lavish salaries, and its work force are all making comfortable wages?
Well, yes, it matters. Amazon’s stock price, the basis of the wealth of its owner and founder, is itself based on the expectation of profits. Amazon doesn’t continue to exist by stock issues but depends on its ability to borrow.
If it could be proven that Amazon could never run a profit, I suspect it would soon find itself in trouble with federal authorities. The general term used for a concern that continues to pay its present stockholders by selling stock to new stockholders and has no prospects for actually operating at a profit is a “Ponzi scheme”.
If its creditors no longer believed that Amazon was able to run a profit, I suspect the company would eventually run into problems financing its debt, something that has happened to countless companies, large and small, in the past.
If Amazon could no longer find purchasers for its stock, I suspect that Mr. Bezos would find himself in trouble and, ultimately, the worth of Amazon stock must depend on profits.
None of the puzzlement over Amazon is new. I recall in the mid to late 90s when Amazon was just getting off the ground hearing it characterized as a plan for becoming rich by selling stock, creating a company, and then backing a business plan out of it, rather than the other way around as was thought to be customary. Amazon was originally a bookselling company (actually a book broker), then the online equivalent of the old Sears catalog—a place where you could buy anything, then a large (if not the largest) online portal for retail sales, then a retail services company. Its business model is still evolving.
There are already signs of it but I think that just as Google and Microsoft are fated to go head to head Google and Amazon are fated to go toe to toe. They both can’t be the primary Internet portal for retail sales and it certainly appears to me that each company has that objective. There can be only one.