Most public came to the realization of the great dominance of Amazon in and around 2013 as evident by the # of times it was mentioned in publicly traded companies’ earnings. Things like this goes up and down per the hype cycle, including things like the ups and downs of terms such as “AI” and “ML”. As the old saying goes, the real “innovation” (which by the way is becoming the term by itself), occurs inversely to that the # of times it’s been mentioned in the mainstream public.
Below are some takeaways from the 21 years of Amazon annual investor letters:
1997: Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.
1997: When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.
2000 – with shares down 80% in reference to Ben Graham quote: We’re a company that wants to be weighed, and over time, we will be—over the long term, all companies are. In the meantime, we have our heads down working to build a heavier and heavier company.
2000 – on bold bets and failure: Online selling is a scale business characterized by high fixed costs and relatively low variable costs. This makes it difficult to be a medium-sized e-commerce company…with a long enough financing runway, http://Pets.com and http://living.com may have been able to acquire enough customers to achieve the needed scale.
2001 – where he first outlines what Nicholas Sleep coined “scale economics shared”: Focus on cost improvement makes it possible for us to afford to lower prices, which drives growth…growth spreads fixed costs across more sales, reducing cost per unit, which makes possible more price reductions. Customers like this, and it’s good for shareholders. Please expect us to repeat this loop.
2004 – an entire letter explaining Free Cash Flow: Future earnings are a component—but not the only important component—of future cash flow per share. Working capital and capital expenditures are also important, as is future share dilution.
2004: The duality between earnings and cash flows—comes up all the time… Cash flow statements often don’t receive as much attention as they deserve. Discerning investors don’t stop with the income statement.
2008: Long-term thinking levers our existing abilities and lets us do new things we couldn’t otherwise contemplate. Seek instant gratification – or the elusive promise of it – and chances are you’ll find a crowd there ahead of you.
2015: Every once in a while, when you step up to the plate, you can score 1000 runs.
2016: “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
2016: Second, most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow.
While we all know Amazon is operating on extremely thin ice of margin on the P&L saide (average in the 2 sub-2 basis points range…) their free cash flow (FCF) has grown substantially, if not, only upward trending with close to a correlation of 1 since inception.
Which one is your favorite takeaways?
Cheers,
Jerry
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