Warehouses aren’t storefronts, but it’s all fixed costs in the end. And while Amazon (AMZN) may connect with you via the Internet, it is increasingly a physical-asset-intensive business, building warehouses in urban areas so it can deliver items the day they’re ordered and building a lavish Seattle headquarters to house much of its growing employee population.
We’ve long questioned the sky-high valuation Amazon shares receive, given its lack of profits and the fact that it produces revenue growth via price-cutting more than anything. And as Bloomberg Businessweek reports, supporting that revenue growth requires a huge and rapidly-expanding asset base.
Economies of scale, or dis-economies? Assets, measured over five and ten years, have grown more rapidly than sales.
The investment in flesh-and-bones assets has been substantial, too, with revenue-per-employee dropping over time. That’s the opposite of scale.
The hope – and the argument all those Amazon bulls buy into (and you’d be nuts to short the stock when it has so many true believers) – is that this latest building boom will set the company up for big growth and profitability.
NASDAQ:AMZN data by YCharts
From here, Amazon looks like a fabulous service, but hasn’t het proven it’s a profitable business.
Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at email@example.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.
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