Amazon and the “Profitless Business Model” Fallacy
18 comments
·July 19, 2025aaronbrethorst
(2013)
turnsout
An important note, because Amazon is now profitable (though not wildly so, given their revenue)
adventured
$651 billion in revenue, $71 billion in operating income. They're approaching wildly profitable for an extremely large business. To be that big and to eclipse a 10% op income margin is exceptional. It's closing in on three times the margin of Walmart (obviously Amazon is making their margin in AWS and ads, not retail).
$71 billion in operating income is so exceptional only seven other companies in history have gotten that large: Apple, Microsoft, Google, Nvidia, Facebook, Exxon and Aramco (if you count them as a company). And importantly, that $71 billion is rapidly expanding - it has doubled just since fiscal 2023. In 15 months sales increased $76 billion and op income increased by $35 billion.
The spigot is flowing. $100b in op income is likely not far away.
CGMthrowaway
Is the whole gist of this article basically, "start with your fixed cost business model and reinvest all proceeds into growth and scale"? What else am I missing?
agentcoops
They bury the important point halfway through the article: Amazon is a free-cash-flow machine and it has almost always been so. The distinction is subtle [1], but consistent (and ideally ever-growing) free-cash-flow is what really matters in valuing a highly capitalized company, even if the firm has always re-invested it each quarter to date. The important point to investors is that the firm's re-investment is a decision -- the company is not brittle to economic downturn and any quarter could decide to payout investors through share buyback etc.
Copious free-cash-flow every quarter is why software companies generally have higher valuations than traditional industries and why it was novel that Amazon, which is not obviously a software company, behaves as one financially.
CGMthrowaway
Makes sense thanks. Software isnt the only industry where FCF matters most either
mlvljr
[dead]
a_c
The 2013 me wouldn’t make any sense out of this article. I’m glad the Theseus ship worked a fair bit on me
typs
This post tracks well with much analysis of some (emphasis some) AI companies in this particular audience.
troupo
Since then, Amazon kept growing and eating other markets (see AWS), or failing to eat markets (see Alexa) while still producing a shitton of money to finance all of that.
However, most of the rest of the industry simply collectively decided that profits don't matter. Most companies of past 10-15 years stopped caring about profits, and only talk about revenue. The are now only two goals in mind:
- survive long enough on unlimited investor money to be sold to the highest bidder and be immediately shutdown
- survive long enough on unlimited investor money to try and corner a market through investor-subdidized price dumping and near-illegal business practices, and then maybe look at how to get some of the lost money back, maybe
Animats
"Profits don't matter" only worked during the period of zero interest rates.
AMZN started to become profitable in 2021.[1] By 2023, it was very profitable. $17 billion in Q1 2025.
[1] https://www.macrotrends.net/stocks/charts/AMZN/amazon/net-in...
axus
Get bought by IBM, Oracle, or Broadcom, and let them be the villains.
teddyh
Once the exit is finalized, who cares about the customers? That’s not my department, says Wernher von Braun.
criemen
Thanks for the reminder! https://www.youtube.com/watch?v=TjDEsGZLbio
null
pengaru
"Revenue solves all problems"
Please update the title with "(2013)". This article was published on October 26, 2013.