From Seeking Alpha:
I am amused when the headlines read that a company failed to live up to Wall Street’s expectations. It should read “Wall Street completely failed at guess the number again”.
Even Christensen, in his book Innovator’s Dilemma, spoke of forecasters in general. Hint: They never get it right.
If that is not enough credence for you, everyone’s favorite investor (not mine particularly), Warren Buffett, had a decent quote regarding forecasting:
“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”
Earnings predictions and these short-term ideologies do not tell you anything about what Amazon is doing or not doing correctly. You need to look at company management to get a clearer picture.
What you need to focus on is whether the company structure is set up for a long-term outlook or focused on short-term rewards.
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If we look at the chairman and CEO positions, Jeff Bezos holds both of them.
Jeffrey P. Bezos, age 52, has been Chairman of the Board since founding the Company in 1994 and Chief Executive Officer since May 1996. Mr. Bezos served as President from founding until June 1999 and again from October 2000 to the present. Mr. Bezos’ individual qualifications and skills as a director include his customer-focused point of view, his willingness to encourage invention, his long-term perspective, and his on-going contributions as founder and CEO.
I have highlighted three important characteristics. These are key in assess the validity of Amazon’s business. The customer focus is the lock-in value of the business model. Most companies are very customer-driven. However, in Christensen’s book, he states that the customer-driven mentality leads companies to just satisfy them, and eventually sees their demise. Thus, encouraging invention is basically acknowledging innovation is needed to survive. This occurs when you pay attention to customers who are dissatisfied.
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The Chair of the Board is selected by the Board and currently is the CEO, Jeff Bezos. The Board believes that this leadership structure is appropriate given Mr. Bezos’ role in founding Amazon.com and his significant ownership stake. The Board believes that this leadership structure improves the Board’s ability to focus on key policy and operational issues and helps the Company operate in the long-term interests of shareholders.
This type of duality can be considered a resource. According to the resource-based view, a key characteristic of a valuable resource is inimitably. Bezos represents that because there is no way any firm trying to compete in the same space as Amazon can create a Jeff Bezos clone.
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Compensation Philosophy. As stated in the Company’s 1997 letter to shareholders, we believe that a fundamental measure of our success will be the shareholder value we create over the long term.
Another characteristic is the historical dependence created by Bezos. This is an intangible resource that defines what the company is about. The extract below goes into detail further about what Amazon represents.
our compensation program reinforces and reflects our core values, including customer obsession, innovation, bias for action, acting like owners and thinking long term, a high hiring bar, and frugality.
These four traits are consistently echoed in almost every interview or report that I have seen concerning the company. Amazon is lucky in the sense that it does not have to reinvent itself and lose its identity. In essence, what values made the company successful in the first place. If you really start to pay attention to the bits that I have been showing you, Amazon is focusing on what researchers have found to be the key ingredients to sustaining competitive advantage: giving customers a value proposition and continually capturing it, constantly innovating to keep and attract new market segments, a management team not afraid to take risks, and only spending when required.
we do not provide cash or equity incentives tied to performance criteria, which could cause employees to focus solely on short-term returns at the expense of long-term growth and innovation.
Interestingly, there are no required peer benchmarks to base compensation.
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Because our compensation program is designed to reward long-term performance and operate over a period of years, named executive officers may not necessarily receive stock-based awards every year. Due to Mr. Bezos’ substantial stock ownership, he believes he is appropriately incentivized and his interests are appropriately aligned with shareholders’ interests. Mr. Bezos has never received any stock-based compensation from Amazon.com.
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This paragraph is critical. Most companies have incentives and annual performance awards to reward a CEO based on annual performance. It is extremely rare for a CEO to come out and state in writing that he/she is appropriately incentivized. This is the exception to the norm.
Link to the rest at Seeking Alpha
PG says these characteristics definitely do not describe the large international media conglomerates that own all the large traditional publishers.
If you want to worry about Amazon, worry about what happens to the company after Bezos dies or withdraws from active management. See (a) Sam Walton and Walmart, (b) Steve Jobs and Apple and (c) Bill Gates and Microsoft for possible outcomes.