from the blog.

Amazon and the need to go beyond profit

Amazon announced the earnings results for the fourth quarter of 2019 last week, showing that revenue rose a surprising 21% in the year over year comparison, achieving $87.4 billion, surpassing the expectations for the period. The results were so positive that the total company value rose above $1 trillion for that night.

A lot has been written about Amazon’s business model, the main point being that it does not aim at a profit. In a move that The New York Times calls “classic Amazon,” the growth in the period was motivated by changes in shipping, from 2-day to 1-day, in which the company traded profit for revenue. The revenue came, but so did the expenses and the additional variable costs from the change in shipping.

It became part of Amazon’s DNA to operate almost at the breakeven point, or the point in which the level of sales is enough to cover costs. The successful performance of Amazon teaches us the need to look at all numbers when analyzing business results. Profits only don’t show you the whole picture: you need to look at sales volume, unit volume, variable and fixed costs, price elasticity, and contribution. It seems to be working just fine for Amazon.


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