In the hilarious world of financial journalism, it's a common joke to call Amazon a "nonprofit." Despite boasting ever-growing sales, a booming stock price, and a ubiquitous brand name, the company makes little money. In fact, the company reported it lost $7 million in the quarter ending June 30.
Thursday, Amazon will release its latest earnings report, and analysts are buzzing about when the company will finally show profits from all its long-term investments. Compared to other large tech companies, Amazon's profits don't seem to match up to its revenues.
Why is Amazon not making money? In part, it's because the company invests a large share of its revenue for the future, saving little for investors. In 2012, the company spent nearly $3.9 billion on building data centers and fulfillment centers around the country. President Barack Obama visited one such fulfillment center in July, using it as an example of new job creation.
A focus on long-term investing has been in Amazon's DNA for decades. In its latest annual report, Amazon included a copy of CEO Jeff Bezos' 1997 letter to shareholders, which stressed the company's long-term strategy, even at the expense of short-term interests.
"Because of our emphasis on the long term, we may make decisions and weigh trade-offs differently than some companies," he wrote.
The question is when the company's long-view strategy will come to fruition. According to one analyst, that could happen soon.
"We're expecting that Amazon by the end of this year [or] sometime next year will kind of taper off this heavy investment cycle and we should start to see...margins improve," says Neil Doshi, analyst at CRT Capital.
Aside from warehouses, Amazon has also been investing in building Amazon Web Services, its cloud computing platform. Doshi believes both the warehouses and AWS have helped Amazon boost its gross margins, a measure of a company's revenue with respect to the cost of the goods it sells.
"It just goes on to prove that their investments in building fulfillment centers and data centers closer to where people are actually living is starting to pay off, and also their investments in high margin business like AWS is starting to pay off," he says.
More warehousing means shorter delivery trips, he points out, and Amazon Web Services is a much higher-margin business, without the transportation needs of an e-commerce business.
Even despite the company's pattern of low profits, investors have continued to believe in Amazon's value. The stock cost around $78 near the end of 2008. Today, one share goes for around $330.
It's tough, of course, to compare Amazon to other high-tech companies because it overlaps with so many. It sells goods like eBay, but like Apple, it sells music and TV shows as well. And it now competes with Netflix in the TV show creation business. It may in fact be a better comparison to put Amazon up against Wal-Mart.
Note: Wal-Mart's results are from the company's quarter ending July 31, 2013.
True, the world's largest retailer is a very different beast from Amazon: Amazon isn't a brick-and-mortar business, and Wal-Mart doesn't make sitcoms about Congress members. But both are in the retail business, where margins can be quite low.
And while Amazon may boost its margins via AWS, its latest push into the grocery delivery business could be a high-cost move. Still, the question is whether the return on investment will be worth it.
Groceries are "probably a very heavy investment business, but it's something that I think consumers would love to have," says Doshi.
Still, the ability to sell lots of goods does not necessarily a successful company make. And some analysts raise a skeptical eyebrow as to whether the company is overvalued, not to mention whether its ultra-long-term strategizing will pay off.
An Oct. 20 investor note from Wedbush Securities says the firm has "little confidence in [Amazon's] desire to provide investors with a strategy road map."
Without that certainty, the company adds, it's hard to be confident in whether to invest in the company or hold off until there's more clarity.
"We are not convinced it will share sufficient details about spending plans to allow us to accurately model profit growth, and it could be a long time before [earnings per share] grows sufficiently to justify its share price," says Wedbush.