These charts prove it: Amazon is unstoppable

These charts prove it: Amazon is unstoppable

Amazon floated on the stock market 20 years go as a humble bookseller; now it’s the world’s most feared company.

So what the hell happened?

This week I’ve already shown you how Bezos conceived of Amazon, and its plan to keep on growing. Today I want to let the story speak for itself. Presenting: Amazon in seven graphs.

Today people see Amazon as an unstoppable juggernaut, the king of e-commerce. But it wasn’t always thus.

After the dotcom bubble in 2000 Amazon was in crisis mode. Its stock had fallen 85%, its staff were getting poached by the likes of Google, and people thought of it as a boring retailer.

Amazon stock price, 1997-2006:

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Just in case you haven’t seen the chart, here’s how things turned out…

Amazon stock price, 1997-2017:

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Amazon stock price, 1997-2017:

Although you’d be pushed to call Amazon a value stock – it’s never turned much of a profit, after all – the company shows how dumb the market can be. Early investors in Amazon will have made 84,000%; 2006 investors (and employees who were paid in stock options) will have made 3,500%.

The tricky thing about Amazon has always been its profitability. Sure, it was able to bring in lots of revenue. But could it translate revenue into profits? In other words, is it a proper business or a gimmick?

Amazon revenue (blue) and earnings (red):

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That previous chart is an oddity. It’s as though Amazon is deliberately trying not to make money. What gives?

A look at Amazon’s free cash flow helps explain what’s going on. Amazon is generating cash – tonnes of it. But it’s reinvesting all that cash back into itself.

The way it works is that some businesses within Amazon are already nicely profitable and making money. The original cash cow was the book business, followed by CD’s, DVD’s and things. The cash from those businesses allowed Amazon to build up other business lines which aren’t yet profitable.

The big news from the last few years is Amazon Web Services, or AWS. AWS has been a smash hit success for Amazon. It’s already incredibly profitable, generating lots of cash that Amazon can plough into its next big thing.

Amazon free cash from operations:

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So what’s Amazon doing with all that cash? All of it is invested. Amazon builds warehouses, buys cargo planes, invents warehouse robots and sinks a fortune into R&D.

Here are some recent patent applications showing what Amazon could be investing in next year and the year after. The following diagram shows floating “sky warehouses”, from which drones can pick up stock for immediate delivery…

Amazon patent application for flying warehouses:

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The second diagram shows a new warehouse robot which, instead of carrying stock from the shelf to the box, flings it across the room instead…

Amazon patent application for stock-flinging-robot:

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So that’s the cycle in action. Amazon’s core businesses like books and AWS generate tonnes of cash; Amazon spends all the cash on building up new businesses like apparel or cargo; and the cycle continues.

So what do you do if you’re a retailer selling apparel or books or DVDs or fidget spinners or…?

You go out of business.

Selected US retail stock prices since June 2015:

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Department stores versus “non store retailers” as a
percentage of all US retail sales:


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On course for record US retail store closures this year:

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So the entire retail industry is getting gobbled by Amazon’s greedy maw.

That doesn’t sound good for investors, right?

Well, it’s bad news for the fools who’d invested in Sears and JC Penney. Doesn’t mean it’s bad news for us.

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