Several years ago, when talking to a chief executive officer of a Net company, he said, “It
will be a dark day when Internet companies start making money.”
Well, of course, most Net companies are not making money. However, more
and more are beginning to mature — and will eventually start sprouting
black ink on their income statements.
This is what’s happening to Amazon.com
. Yesterday, the company reported its financials. Yes, there were
heavy losses. And, yes, there were huge amounts of revenues. In the
critical Christmas season, losses were $323.2 million, up from $46.4
million in the same period a year ago. Revenues surged to $676 million, up
from $252.8 million in the same period a year ago. The sequential growth
rate was 90 percent. What’s more, repeat orders accounted for 73 percent of sales.
But, interestingly enough, the book division hit profitability. Eventually,
other divisions of Amazon.com will hit profitability. In fact, Amazon.com’s
chief financial officer stated that there will be significant decreases in operating losses in
As I stated in a column last year, Amazon.com is the e-tailing vortex. To
succeed in e-commerce, you need to buy space on Amazon.com real estate. For
example, customer accounts increased by 3.8 million to 16.9 million (up
from 6.2 million at the end of 1998).
Luckily for Amazon.com, this real estate will escalate in value. In a
sense, Amazon.com will become a toll-road.
But the toll-road will present win-win situations. Amazon.com will provide
a platform and the other companies will provide expertise in their market
segment. Companies that should benefit greatly include Audible (ADBL)
, which sells premium audio content; Ashford.com (ASFD)
, which sells luxury goods; and Drugstore.com (DSCM)
, which sells prescription drugs.
In the future, Amazon.com should continue to perform well. It will further
enhance its leadership position and dominate many other markets. But, all
in all, the shareholder returns will start to normalize. In other words,
don’t expect the returns investors have received in the past few years.