Itus Company Insight Series : The Long and Short

Amazon, with a market cap of USD 1.5Tr, has grown its wings and presence to every industry (across commerce, infrastructure, retail, logistics, media). When looks at Amazon, it seems like a series of unrelated bets working out well. It begets to ask the question, what was the thought process behind each move, and did it have an overarching strategy?

At the Sohn Conference in 2016, Chamath had broken down the transition of how Amazon had actually planned its growth. Amazon looked at its core business in 2005, and its income statement. What they went around building over the course of the next 10 years, was to transform each line item in their income statement to a separate business which actually gave them a multiplier in terms of revenues.

What does this mean?

One of the largest line items in terms of their expenses was product costs – remember in ’05, Amazon was selling books online as its primary business. They transformed this into a product and a business line around Amazon Kindle. Their biggest optionality came through when they transformed their technology and infrastructure costs into their AWS business which they rented to the rest of the world. Today, this is their biggest cash cow on its balance sheet.

So while one looks at Amazon, and says a lot of what Amazon does, is unrelated diversification, behind the lines – each product/infrastructure/business line has been built around transforming their expense lines into revenue centres. This at its very core, has been one of the reasons why they continue to compound wealth for shareholders.

The performance-related information provided in this newsletter/blog is not verified by SEBI. The content is intended solely for internal circulation and general informational purposes. It does not constitute investment advice or any form of financial recommendation.

The research information shared herein may contain inaccuracies or typographical errors. All liability for actions taken or not taken based on the content of this newsletter/blog is expressly disclaimed.

No reader, user, or browser of this Newsletter / blog should act or refrain from acting based on any information in this newsletter/blog without seeking independent financial advice. Use of, and access to, this publication or any links or resources provided within do not establish a portfolio manager-client relationship between the reader, user, or browser and the authors, contributors or Itus Capital.