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What Slate Gets Wrong About Amazon

Slate writer Will Oremus says Amazon founder and CEO Jeff Bezos has “an uncanny ability to avoid making money.” What does Oremus get wrong about Amazon? Pretty much everything.


Last week, Slate writer Will Oremus published an article about Amazon with the headline “Amazon’s Jeff Bezos Is Like King Midas In Reverse.” An alternative and potentially more accurate headline probably would have been, “Jeff Bezos Wanted Nothing To Do With Slate And Is Therefore A Stupidhead.” The thesis of the article is that for all its notoriety, Amazon is simply incapable of making money. Fun, and counter-intuitive, right? That’s So Slate.

Unfortunately (and unsurprisingly, given the source), it’s just not true. What did Slate get wrong about Amazon? Pretty much everything.

This is normally the point at which I would write mildly insulting things about the writer’s ability to credibly examine a company’s financial statements (“Quick, get me a J-school grad with a BS in philosophy to do a quick DCF model with comps for all competitors!” said no finance professional ever), but in this case, Oremus wasn’t even making his own argument. Instead, he cribbed the entire premise, including the following chart, from Statista, an online statistical data provider.


The long and short of the standard argument against Amazon is that despite rapid revenue growth, Amazon has failed in recent quarters to post strong profits. And despite the lack of recent quarterly profits, the company’s stock price nonetheless continues to climb. Ergo, the company must be overpriced given its recent financial fundamentals. It’s an argument I completely agree with, especially given the insanely high price-to-earnings ratios implied by Amazon’s stock price. But that’s not the argument that Oremus cribbed and published as his own. The conclusion Oremus drew was that Bezos “is a true master of not making money.”

If only there were a way to determine the precise amount of net income a company has generated and retained throughout its history. If only there were a single line item on a balance sheet to show us if a company has, as Oremus charged, “an uncanny ability to avoid making money.”

Ladies and gentlemen, I give you…the retained earnings line item on the balance sheet, which discloses the net accumulated and undistributed profits of a company over its entire history (e.g., if a five-year-old company posted a $10 loss in each of its first two years and a $15 profit in each of the next three years and distributed none of those profits as dividends, its retained earnings account would have a positive balance of $25). So what does this magical equity account on Amazon’s balance sheet tell us about the company’s profit history?

It tells us that Amazon has generated and retained nearly $2 billion in net income throughout its history. Did King Midas take an idea, start tinkering with it in his garage, and turn it into nearly $2 billion in net profits in under two decades? I don’t have a journalism degree from Columbia, but I’m almost certain the answer is no.

But surely, given Oremus’ pronouncements, Amazon must have posted huge losses over the past several years, right? Surely no journalist would make such a bold claim about a company’s financial history without doing a little of his own research first, right? Eh, not really, it turns out.

In 2012, the company posted losses of $39 million on $61 billion in revenue. For 2009, 2010, and 2011, however, the company reported cumulative net income of over $2.7 billion. But surely it must have lost tons of money during the recession, you say. Not so much. In 2007, Amazon earned $476 million in net income, and in 2008, its profits totaled $645 million [correction: I initially mixed up the 2007/2008 numbers — thanks to @richisglorious for the note]. The company also posted profits in 2003, 2004, 2005, and 2006.

In fact, 2012 was the first year since 2002 in which Amazon lost money. Until last year, it had posted profits for nine consecutive years.

But other than that, Mrs. Lincoln, Slate financial expert Will Oremus totally nailed it when he said Jeff Bezos has no clue how to make money.