Amazon Gambles Trusting Jeff Bezos


Since 1997, Jeff Bezos, the founder of Amazon, has gambled that his investors would trust him. In 1997, Amazon entered the stock market, offering shares at only $18 each. Today one share is worth approximately $324. While Amazon investors are attracted to its burgeoning share price, investor faith in Amazon seems to be dwindling after over 12 months of disappointing quarterly earnings reports. Investors have seen Amazon expand exponentially; some of them would like to see Amazon put on the brakes.

Amazon is the largest retailer in the world; they grossed $61 billion last year. They control 500,000 servers used by hundreds of companies, making them the biggest cloud network in the world. 33 percent of all Internet users access at least one Amazon-powered website per day. The company makes over $117,000 a minute. Last year, Amazon processed 306 items per second on its busiest day. They have issued 150 million Amazon credit cards to their customers. Amazon Web Services has increased 90% per year since inception. In 2012, Amazon grossed over $2 billion in web revenue and that is expected to double this year.

Recently, Amazon announced that they expect to lose $810 million in the next quarter. Tom Szkutak, Amazon’s chief fiscal officer, announced the expected loss, citing heavy web services and digital content investment, along with the opening of 21 new fulfillment and sorting centers in order to ship items to consumers much faster. He said the company expected to spend $100 million on new video content in an attempt to spruce up its Prime Instant Video content consumer product. Prime customers spend twice as much as nonmembers, he said.

Even after this announcement, Jeff Bezos is still asking his investors to trust him and gamble on Amazon’s expected long-term success, despite recent losses. Amazon investors are having second thoughts. Very recently, Amazon lost 11 percent, or $3 billion. The $810 million loss next quarter is much larger than investors expected. Amazon spent millions of dollars on the Fire phone; in beta testing, it bombed. Since Netflix is the current streaming media giant, investors are not happy about Amazon investing $100 million in something that might flop.

Heavy investments in Amazon Web Services have investors worried because Google is giving Amazon a run for its money. As a result, Amazon is slashing costs to the bare minimum for the consumer, in order to compete with other providers. While Amazon cuts costs to compete, profits are bound to dwindle. Amazon is reluctant to open up, to tell its investors how they make money. Investors are becoming anxious, anxious investors want to know more. They want to know how their money is being spent. Amazon’s touted same-day delivery service is under attack. Google, eBay and others can now make the same claim. Amazon’s current book sale wars are making investors nervous as well.

Michael Scanlon, a manager at Manulife Asset Management, said he was definitely ready to see a profit on his investment, his gamble with trusting Jeff Bezos was wearing thin. Kerry Rice, an analyst for Needham and Company agrees with Bezos and his long-term perspective. Michael Yoshikami, CEO of Destination Wealth Management, sold his shares in Amazon last year; stating that he could not trust Bezos any longer; he needed more information to remain faithful to him.

By Dennis De Rose

New York Magazine
Business Insider
Bloomberg Business Week