How is Amazon still in business when they say the lost money every quarter?

Essentially, Amazon is choosing growth over profits.

And, they’re able to lose money to grow their market share because investors are giving them the cash they need to undercut competitors, build out their infrastructure, do more marketing, increase product development, M&A, etc.

The beauty of this model is, if the market decides it’s had it with Amazon’s “lose money to grow” model, they can sell off part of their business, or enact some other acute measure to be profitable for a quarter. The market will get all excited that Amazon’s finally profitable, and then they can go right back to business as usual.

It kind of sucks from the perspective of they have a huge advantage over the vast majority of their competitors: they don’t have to make a profit to stay alive. But, it is what it is. And, they’re giving their competitors a useful platform from which to expand sales, so there’s definitely give and take there.

There are some interesting rumblings in this mega internet retailer market: Walmart, which has a long history of taking the best of what other companies do and incorporating it into their own business model, is doing their best to out Amazon Amazon. If/when they start to get more of a toehold in the market, their buying power and cash reserves (plus their shareholders giving them the same capabilities as Amazon to spend other peoples’ money) could theoretically force Amazon to rethink their model.

And there’s more competition that “people say” could force Amazon to change, such as Chinese retailer Alibaba which is a major player, and very profitable.

But as long as they continue to grow, and occasionally come through with a profitable quarter, history has shown us that investors will continue to bet on them as a long-term winner. And if they’re allowed to continue to gobble smaller companies, markets, grow their logistics, etc. without having to make a profit, that at least sounds like a pretty good bet, in theory.

I personally don’t own Amazon stock and haven’t owned it for years.

In summary, when you have people investing billions of dollars into your company regardless of the fact that you’re not making a profit, you have the option–even the obligation–to spend that money to grow.


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