Westminster Theological Seminary’s bookstore almost went out of business last Christmas, largely because they have a hard time competing with Amazon.com’s prices, which are so low that even Amazon itself can’t make a profit. In a recent email to their customers, they lamented:
Our great challenge is that we continue to exist in an environment where Amazon — the industry leader — is allowed by Wall Street to function without regard for their short-term profitability. Some of you may be aware that Amazon recently reported a $7 million loss on $15.7 billion of revenue. Next quarter, they are forecasting a loss of between $65 and $440 million. Despite this, their stock is up about 20% this year, indicating investor willingness to sustain Amazon’s loss-leading business model. As I ponder economic history, I can’t name another 21-year old company with which Wall Street has been this patient.
Amazon’s results show that, despite their buying power, technology, management skill, and income from non-book products and services, they are unable to post a profit given their current pricing model. This reality is made all the more striking given that competitive forces like Borders and independent bookstores have gone out of business while Barnes & Noble and other retailers struggle to carve out an existence.
Small bookstores and online commerce rivals aren’t the only ones puzzled by Wall Street. Recent articles in Forbes and The Guardian also show surprise that investors continue to have seemingly unwavering faith in Jeff Bezos, despite little or no explanation from him for the losses. Will this bubble ever burst? Whether it does or doesn’t, what will the long-term effect be on consumers?