A Penny for E-Biz Thoughts

 
 
By Peter Coffee  |  Posted 2002-02-04 Print this article Print
 
 
 
 
 
 
 

I've often predicted that Amazon.com would never turn a profit. I'll continue to say that the company will never yield a competitive return, but I'm not going to hedge: I said that it would never make money, and I was wrong.

Ive often predicted that Amazon.com would never turn a profit. Ill continue to say that the company will never yield a competitive return, but Im not going to hedge: I said that it would never make money, and I was wrong.

Never mind that a penny per share puts Amazon at an annualized price/ earnings ratio (as I write this) of about 350, compared with the S&P 500s composite ratio of 40. Never mind that the first-quarter forecast for 2002 goes right back into the red. Never mind that Amazons $5 million profit would have been a $10 million loss without fortunate foreign exchange gains. Never mind that earnings are less than 1 percent of sales or that they follow facility closures and 1,300 layoffs.

Unless, of course, youre an investor and not a New Economy cheerleader, in which case perhaps you do mind.

While Amazon.com was edging into the black, Wal-Mart Stores was edging past ExxonMobil to vie for the No. 1 rank in the Fortune 500. Wal-Mart sells 200 times as much stuff as Amazon.com and earns more than 3 cents on every dollar of sales. And Wal-Mart also has a Web site.

By contrast, Amazon.com is broke: Its long-term debt is 99.6 percent of its assets. (Wal-Marts long-term debt ratio is 20 percent.)

Wal-Mart could buy Amazon.com outright for only 15 percent of Wal-Marts current assets. And Amazon.com has to swim in the same pool of asset allocation as all of the other real companies.

So you wont see me running down the street, yelling, "The New Economy is back!" Not only is it not back—it was never here in the first place. The Net just makes the Economy (no adjective, thank you) work better.

When your base-line business is profitable, supply chain integration makes it possible to serve more demanding customers for an ever-smaller premium, while boosting sales—and earnings—per transaction. Thats Retail 101.

Remember it, or someday you, too, may be ecstatic to eke out a penny per share.

Tell me why Im wrong again at peter_ coffee@ziffdavis.com.

 
 
 
 
Peter Coffee is Director of Platform Research at salesforce.com, where he serves as a liaison with the developer community to define the opportunity and clarify developers' technical requirements on the company's evolving Apex Platform. Peter previously spent 18 years with eWEEK (formerly PC Week), the national news magazine of enterprise technology practice, where he reviewed software development tools and methods and wrote regular columns on emerging technologies and professional community issues.Before he began writing full-time in 1989, Peter spent eleven years in technical and management positions at Exxon and The Aerospace Corporation, including management of the latter company's first desktop computing planning team and applied research in applications of artificial intelligence techniques. He holds an engineering degree from MIT and an MBA from Pepperdine University, he has held teaching appointments in computer science, business analytics and information systems management at Pepperdine, UCLA, and Chapman College.
 
 
 
 
 
 
 

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