Despite barely eking out a profit nearly a decade ago and losing billions ever since, Amazon's ongoing expansion is unnerving the traditionalists. The company continues to shred Wall Street’s “unwritten rules.”
Amazon’s net profit margin hit its high water mark at 2.8 percent in 2006 (on sales of approximately $10 billion). However, as its annual sales revenues continued to grow, its net profits continued to fall. In 2011, the new profit number was a meager .06 percent. For the year 2015, against annual sales revenues of $107 billion, the company posted losses of $241 million, despite double digit revenue growth and generating $2 billion in “free cash flow.”
Note: Free cash flow (FCF) is a measure of financial performance calculated as operating cash flow minus capital expenditures. It has long been Amazon’s favorite metric, as it ignores billions of dollars in spending that the company is financing through capital leases. In other words, Amazon is actually losing billions, not hundreds of millions.
But who’s counting?
As we all know, Amazon continues to spend a fortune on free shipping. So, while news of its latest air cargo deal turned heads, no one was truly surprised.
Air Transport Services Group (ATSG) has confirmed that Amazon has agreed to lease twenty
So let’s add some perspective: Amazon has already acquired a truck fleet; we’ve all heard about its Uber-inspired last mile delivery scheme; and does all that talk about drones even seem far fetched anymore? Come to think of it, this deal seems downright conservative. It not only confirms the company’s desire to take more control of its customer fulfillment process, but double-digit annual increases in delivery expenses were just plain unsustainable and Amazon knew it.
Even more, when you consider that Amazon’s China subsidiary was recently licensed to handle ocean freight shipments for other companies (making it easier for Chinese merchants to send packages to the U.S.), you don’t have to stretch your thinking to understand Amazon’s opportunity here –or hedge, if you prefer.
As said, Amazon writes its own rules. Frankly, it was probably easy for Amazon to build this business case. Beyond the obvious cost savings and the fact that its business model relies on instant customer gratification, the unique capabilities of its new age shipping network will no doubt fit the requirements of a select group of customers we’ll probably never hear about.
Despite all of its losses, the company’s share price continues to soar, moving from the mid $30s back in 2006 to a close of about $555 just yesterday.
