> 5 percent profit margin on Amazon’s own retail sales
Last I checked, 5 percent margin is still making a profit, and definitely doesn't fit the definition of dumping nor predatory pricing.
Part of the theory hinges on this:
> However, Sussman asserts in his paper, “Amazon utilizes existing loopholes in Generally Accepted Accounting Principles (GAAP) disclosure regulations to exclude a significant portion of its expenses.”
> Amazon accomplishes this in part through using capital leases to purchase equipment and some of its 288 million square feet of office space. Instead of paying cash, Amazon borrows and finances these purchases over time. The leases don’t show up as expenses in Amazon’s free cash flow calculations, even though the equipment is listed as an asset. A 2017 Motley Fool report showed that, when you add in capital leases, Amazon’s 2017 cash flow was indeed over $1 billion in the red, although more recent numbers have bounced back.
Again though, there's nothing illegal about a firm using debt to finance expansion, nor is there anything illegal about a firm's net profit being negative, especially if there's positive cashflow from selling to consumers.
The whole article is nothing more than theories without any proof that Amazon is actually dumping products. And like I said, running thin margins isn't illegal. Undercutting your competition isn't illegal. Scaling out so your costs are less than your competition isn't illegal. You need to prove that a firm is actually dumping, it's not enough to think that they might be because they're out-competing you.
More from the article:
> As Sussman explains, if Amazon is recouping losses from a predatory pricing scheme by reducing its costs, the windfall profits aren’t being transferred to customers.
Reducing their costs to realize a profit literally is passing on the benefits to customers by continuing to sell at a low price.
Let's say you mortgage something, take on $250k in debt. You now have $250k in assets. Net is zero. You don't take away the debt payments from your income, since you received something from taking on the debt, and it becomes a net positive over time.
It works similarly with operating leases. But the actual accounting is a tad more complicated, so here's a link:
Equity = Sigma(Free-cash-flow) summed over time. In the case of AMZN, equity is about 43B. 18B of this amount is goodwill(intangible vaporware). That leaves with about 25B real equity. And surprisingly, this 25B matches with FCF over the last 2 years(2017-2018). Which essentially means, cumulative FCF until 2017 was indeed 0. Numbers do seem to support the claim that AMZN was running on 0(averaged over time) FCF. Showing 1B in one quarter, -1B in another. But overall 0.
Whether 0 cumulative FCF means predatory pricing is a different question altogether. I'm not so sure about that. How would visionaries build big things, that need, and money? If AMZN loses it and acts monopolistic, I think people will respond by migrating en-masse. No one likes too much inequality. Jeff should do something about that image.
> 5 percent profit margin on Amazon’s own retail sales
Last I checked, 5 percent margin is still making a profit, and definitely doesn't fit the definition of dumping nor predatory pricing.
Part of the theory hinges on this:
> However, Sussman asserts in his paper, “Amazon utilizes existing loopholes in Generally Accepted Accounting Principles (GAAP) disclosure regulations to exclude a significant portion of its expenses.”
> Amazon accomplishes this in part through using capital leases to purchase equipment and some of its 288 million square feet of office space. Instead of paying cash, Amazon borrows and finances these purchases over time. The leases don’t show up as expenses in Amazon’s free cash flow calculations, even though the equipment is listed as an asset. A 2017 Motley Fool report showed that, when you add in capital leases, Amazon’s 2017 cash flow was indeed over $1 billion in the red, although more recent numbers have bounced back.
Again though, there's nothing illegal about a firm using debt to finance expansion, nor is there anything illegal about a firm's net profit being negative, especially if there's positive cashflow from selling to consumers.
The whole article is nothing more than theories without any proof that Amazon is actually dumping products. And like I said, running thin margins isn't illegal. Undercutting your competition isn't illegal. Scaling out so your costs are less than your competition isn't illegal. You need to prove that a firm is actually dumping, it's not enough to think that they might be because they're out-competing you.
More from the article:
> As Sussman explains, if Amazon is recouping losses from a predatory pricing scheme by reducing its costs, the windfall profits aren’t being transferred to customers.
Reducing their costs to realize a profit literally is passing on the benefits to customers by continuing to sell at a low price.