9 times higher in 7 years! How did the 9.5 trillion giant Amazon "turn over"?

Amazon has risen nearly ninefold since 2015, with a market capitalization of $1.5 trillion, equivalent to about 9.5 trillion yuan.

In 2014, Amazon's annual losses had made Wall Street wonder if the company would never be profitable. At a time of pessimism on Wall Street, One of Amazon's ten-year-old bets began to generate profits in 2015: Amazon Cloud. Amazon Cloud's rapid growth shocked Wall Street, pushing Amazon's stock price to double that year.

Amazon Cloud has maintained rapid growth over the past five years. According to the latest news, the net sales of Amazon's cloud platform in the fourth quarter of 2021 were $17.780 billion, an increase of 40% year-on-year, while the net sales of the business in the whole year of 2021 reached $62.202 billion, an increase of 37% year-on-year.

Long-term investing must be matched with companies with long-term thinking that may not cater to the tastes of capital markets in the short term, but that will pay off in the long run. Analysts believe that a true top player like Amazon is playing an "unlimited game" that aims to focus on beating all competitors and building a unique ecosystem in the long run.

The recent increase in the annual fee for Amazon Gold membership shows its stickiness as a unique ecosystem. The annual fee for Amazon Gold membership was $79 in 2005, raised to $99 in 2017, and raised to $119 in 2018. Starting February 18 this year, Amazon's annual fee for gold membership has been further increased to $139 per year.

A bet that has been lurking for a decade – the Amazon cloud

Amazon Cloud originally used Oracle's relational database to manage Amazon.com, but the growing traffic overwhelmed the software and threatened the stability of the site every once in a while, which Bezos was frustrated by. In 2007, Amazon launched SimpleDB's original database, and when SimpleDB also proved too bulky and difficult to use, Amazon Cloud engineers began developing DynamoDB, which was faster, more flexible, and able to cope with the internet's uniquely large traffic. Netflix is a user of Amazonian clouds.

In 2010, when Amazon's head of cloud, Gulabani, predicted that it would take Amazon a decade to succeed on relational databases, Bezos said, "I bet you need more than a decade, so you'd better start now." Recognizing that a robust database will be one of the biggest opportunities for cloud computing, Bezos has greatly increased its budget.

In 2012, Amazon Cloud released a data warehouse "Redshift, a tool that allows companies to analyze the data they store in the cloud; in 2015, it released a relational database ," Laser. "You know, the importance of a name can be only 3 percent, but sometimes, 3 percent can decide whether you win or lose," Bezos said. "As Amazon moves into the database business, a vicious battle between it and Oracle is inevitable.

Until 2015, Amazon did not disclose the financial details of Amazon Cloud, and in 2015, Amazon Finance proposed that the revenue contributed by Amazon Cloud was close to 10% of Amazon's total sales, to the extent that it was necessary to disclose it under federal law. After the news was disclosed, Amazon's market value rose nearly 15% in one day, breaking through the $200 billion mark for the first time, ending Amazon's history of never making money.

The culture of Amazon Cloud is the epitome of Amazon's corporate culture: tenacity, perseverance, and a focus on high standards that cannot be achieved. Brad Stone, author of The Bezos biography, quotes a former AWS (Amazon Cloud) executive as saying, "We're really good at accepting gold medals on the one hand. , while complaining that it is not dazzling enough. ”

20 years of consistent betting – playing an infinite game

"For a long time, we were unprofitable. This is our strategy. Bezos said in 1997.

Capital markets are inherently short-term, and most investors and public companies focus only on maximizing the company's profits and fluctuating stock prices, but Amazon is the opposite, as Natalie Berger, author of "The Amazon Effect," puts it.

Bezos's first letter to shareholders in 1997 still reads like it was just written yesterday. In a 1997 letter to shareholders, Bezos said: "We first measure ourselves by market-leading metrics, customer and revenue growth, customer repurchase rates, brand recognition, and we have been and will be actively committed to expanding and exponentially expanding our customer base, brand and permanent infrastructure.

Amazon has been doing the same for the past 20 years. Britton Ladd, a former Amazon executive, believes that companies are either playing limited games or playing unlimited games. In a limited game, the company believes it can beat its competitors. Limited games are characterized by a set of rules and well-defined mechanisms agreed upon by all parties to record game scores.

Rudd believes Amazon is playing an infinite game with the goal of outpacing competitors. Amazon is well aware that competitors are destined to emerge endlessly, and Amazon itself understands that it is impossible to dominate in all areas. Amazon made a strategic decision to focus on surviving by beating all of its competitors and creating an ecosystem that perfectly meets and serves consumers' growing demand for products, services, and technologies.

British department store retailer Debenham said that the average retailer will reinvest 1% to 2% of its revenue in the construction of the system, while Amazon reinvests 6% in this regard. "It's a 5:1 difference, and it gives reinvestment to a better toolkit, better testing, and better infrastructure." He said.

"When you run a business at a very low margin, you really develop a sustainable moat around it." Mark Mahani, general manager and analyst at RBC Capital Markets, said he has been involved in Internet stocks since 1998. "Very few companies are willing to go into Amazon's core business areas and try to compete with them at a 1% or 2% profit margin."

Natalie Berg said that this is only a retail business, in fact, many of Amazon's non-core businesses are first-class loss-making big, Amazon may still be losing money in express delivery, Amazon's e-reader Kindle and smart speaker Echo and other terminal devices are typically sold at cost or at a loss. Given that Echo owners spend 66 percent more than Amazon's average shopper, the retailer clearly has an incentive to subsidize the device's sales.

Long-term thinking - continuous innovation on behalf of customers

"If you're wondering what makes us different, the answer is this. We are truly customer-centric, we are truly long-term oriented, we are truly passionate about innovation. This is not the case for most companies. Bezos said.

Amazon isn't the world's first customer-first retailer, but what sets Amazon apart is that it's never satisfied with the status quo. It always seeks better ways to serve customers and make their shopping experience more convenient and faster.

In a 2016 letter to shareholders, Bezos said that there are many advantages to putting everything customer-centric, but one of the biggest advantages is that customers can always point out unexpected dissatisfaction, although they can't say how to improve, they always expect better things, and your desire to please customers can drive you to invent.

Amazon is relentless in innovating on behalf of its customers, and in the process, Amazon not only amazes consumers, but also disrupts more industries. Natalie Berger says That Amazon isn't really a retailer, it's a tech company whose sole purpose is to innovate on behalf of customer needs, but in the process, it sells a lot of things.

Source: Brokerage China (ID: quanshangcn)

Editor: Ye Shujun

Copyright Notice

All original content of securities times platforms shall not be reproduced by any unit or individual without written authorization. Our company reserves the right to pursue the legal responsibility of relevant actors.

END