The Amazon effect
The top-placed Internet pure-play in a recent ranking of earnings called the Internet 500, Amazon.com reported Q3 losses, not including large one-time charges, of $US86 million on revenue of $US356 mi
The top-placed Internet pure-play in a recent ranking of earnings called the Internet 500, Amazon.com reported Q3 losses, not including large one-time charges, of $US86 million on revenue of $US356 million. The earnings report alone led to a dip in next-day trading among net stocks across the board. The companys losses reportedly added up to over $US1 billion at the end of Q1 2000. Whichever way you look at it, the company will have to sell an awful lot of books to recoup such a massive investment.
Amazon.com isnt the only company swimming in a vat of red ink. Of the top 200 companies in the Internet 500, those trading with losses outnumbered profitable online enterprises by almost two to one. Some of the Webs household-name e-tailers - Beyond.com, E*Trade Securities, eToys, Infoseek and Lycos, to name but a few - also have losses that would bank-role many developing nations.
But for the majority of the big-name companies in the e-tailing world, success is no longer weighed in the traditional sense and, assuming the heavyweights can stay afloat long enough, experts believe the big investors will eventually return profits.
The best-known brands adhere to the mantra of Amazon.com chief executive Jeff Bezos: Its better today to develop brand, business and market share than worry about profits. They will come.
Jupiter Communications recently reported that most online company directors would choose customers and revenue over profitability as their favourite measurements. Its a question of planning for the future.
Amazon! Everyone knows them. Theyve built brand but as far as I know they havent made a penny from any of their sites, but theyre making a lot of noise, says Tanner-Smith.
The value for people investing in Amazon.com isnt that theyre making profit and collecting dividends, because theyre not and wont for a while. Its because theyve built a good brand. If youre going to buy a book on the net, you think Amazon and thats worth more than profits in the short term, he adds.
In terms of profit and loss and whos making money, for those kind of companies their brand names are much more valuable. While theyre not making money now, they will be. Whether they live up to their market capitalisation is another story.
The fact that despite significant sales, even - and perhaps especially - the biggest of .coms cannot produce a profit begs the questions, Wheres the money going to come from, and when? These are the concerns that sparked recent stock devaluation across much of the e-industry.
In a bid to address the problem and stave off the Grim Reaper of closure, e-tailers have stopped, or seriously cut back on, mad give-aways, with the rash of free delivery and first-time user discounts retreating from the fore.
Pushed by impatient investors to produce profits sometime before the men in white coats discover ice in Hades, many e-tailers are taking onboard that most mundane of all business models: reduced costs and higher earning means a better chance of profits.
This article appeared in the March, 2001 issue of PC Authority.
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