From fulfillment centers to entertainment programs to bookstores, Amazon’s past spending habits are a predictor of future profitability.
(Bloomberg Gadfly)—Which is the real Amazon.com Inc.? Is it the company whose 2016 operating profit was five times the level of three years earlier? Or is it the Amazon that has mostly delivered minuscule profits and instead redirected nearly every dollar in sales toward its mission of world domination?
Believe in history. It’s the latter.
It is true that Amazon generated $4.2 billion in operating profit in 2016—nearly equal to the company’s operating profit in the previous five years combined. Pat on the back, Amazon, for “only” spending 97 cents of every dollar coming in the door last year.
The step-up in profit is a big reason Wall Street started to expect Amazon’s profit to soar in coming years, although some doubts have creeped in recently. It may be time to rethink those expectations.
Amazon, No. 1 in the Internet Retailer 2016 Top 500 Guide, has made it clear that it is splurging to build up its package-shipping warehouses and entertainment programs for its Prime video service to fuel future revenue growth. The number of full- and part-time Amazon employees rose 48% in 2016 to 341,400. Amazon continues its pattern in which its core operating expenses, excluding purchases of merchandise and other direct costs for its business, are growing faster than its revenue.
The trouble is it’s hard to predict the full tab for Amazon’s…