Amazon’s financial result is scary for some – but not for the reasons investors imagine

Amazon Prime, a $US99 a month subscription package that provides delivery services and streaming media, has attracted 54 million US members and reaches 51 per cent of the nation’s households .

Amazon doesn’t provide these numbers, but a research group’s subscriber estimates are a good fit with Amazon’s most recent financials, which showed a 22 per cent increase in sales during the 2015 calendar year.

The scary thing about Amazon is that its capacities are evidently maturing, yet it behaves like a startup and is investing very heavily. Investors certainly were scared by the latest numbers, dumping the stock price quite heavily. But Amazon’s behaviour should be worrying others a lot more — and for other reasons.

Shareholders reacted to the profit, which was a bit below the numbers expected, but that is plainly not the issue. After paying for growth drivers like property and software, and after deducting even principal repayments, Amazon’s free cash flow in the December quarter was $US4.7 billion compared with $US529 million a year before. Profit is clearly optional.

Jeff Bezos thinks there is a lot of money on the table and he is choosing to invest rather than give it to investors who want a mature business that does nice things like declare big profits and dividends.

They’re in the wrong place. Because so long as Bezos is boss, Amazon will continue on his path. Which is what’s fascinating — and probably dangerous — for some who have managed to remain comfortable in the disrupting digital world.

We can’t know exactly what Amazon is investing in, for the simple reason that Bezos does not say. But there are some signs. The really big step Amazon has made is Prime, because it adds a valuable attribute that is missing in businesses like eBay.

Amazon CEO Jeff Bezos: Just what is he up to?
Amazon CEO Jeff Bezos: Just what is he up to?

Amazon is engaging people in their home with a channel they pay for and down which it can deliver services. Amazon’s greatest proof is that its penetration in the US is high and rising. (Marketers who like loyalty cards might ponder that contradiction.)

The evidence is that Amazon has jumped the fence from the loyalty-free zone of ubiquitous digital media into the personal space, where a trusted brand becomes a (paid) domestic partner.

The bookseller has morphed into a full-service retailer and a media/tech service that is clearly upselling itself into valuable chunks of the household budget.

If Bezos is up to nothing else — which is unlikely — Amazon still has enormous potential in deepening its reach into US household spending and building outward. Only a third of its revenues last year were sourced outside the US.

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