Amazon’s Bezos has kept the same message to Wall Street for 22 years

Jeff Bezos has gone through a lot of changes since Amazon’s IPO in 1997 — most notably in his appearance and level of wealth. But there’s one thing that’s remained constant: his relentless focus on the future.

That approach, which Bezos touted in his first letter to investors 22 years ago, was made abundantly clear this week in Amazon’s second-quarter earnings report. Amazon beat Wall Street estimates on revenue but missed on profit, mostly because of increased spending across the board, a pattern that’s continuing.

“The investment will be stepping up in 2019,” Amazon CFO Brian Olsavsky said during the earnings call on Thursday.

Shipping costs accelerated 36%, the highest in five quarters, to $8.1 billion, after the company spent more than the projected $800 million to make one-day delivery the standard for Prime members. In other words, Amazon is cutting into its profit margin today so it can send more things faster and, if the thesis works, lure even more consumers into Prime.

Amazon shares fell close to 2% on Friday following the disappointing earnings number. But the stock is still up 29% this year, and Amazon remains the world’s second most valuable publicly traded company, behind only Microsoft. 

Here’s what Bezos wrote in his 1997 shareholder letter — shortly after the company’s IPO — which has been included in every annual letter as a reminder of what’s important:

“We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions,” Bezos wrote in the letter at the time.

It quickly became a familiar theme.

In 2000, during the midst of the dot-com crash, Bezos wrote that he would like to “draw your attention to the section entitled ‘It’s All About the Long Term,'” referring to the 1997 letter. The following year, as the market collapse endured and Amazon incurred another huge loss, Bezos wrote, “if we do our jobs right, today’s customers will buy more tomorrow.” And in 2012, after the company recorded its biggest loss in over a decade, Bezos reiterated his view, writing:  “Take a long-term view, and the interests of customers and shareholders align.”

Amazon is a far different company today than it was 22 years ago, when the business was all about selling books via the internet. Then it became about selling everything a consumer would want online. And along the way, Amazon pioneered the cloud infrastructure market, built a large online ad business and took the lead in voice assistants. It also started generating actual earnings, producing record profit last year and giving the company that much more cash to plunge back into its core retail operation.

“The bottom line is that Amazon, as usual, is investing in long-term growth opportunities,” Macquarie Capital’s Ben Schachter, who recommends buying Amazon shares, wrote in a note Friday. “While it will lower margins, we think the increased top-line impact and, perhaps more importantly, the widening of the competitive moat is worth it.”

During the second quarter, Amazon saw significant increases in two major expense categories: marketing and shipping. Marketing costs rose 48% to $4.3 billion, as Amazon spent more on promoting its products and hiring salespeople, primarily for its AWS cloud unit. Shipping costs were tied to investments in expanding one-day delivery.

In addition to reporting underwhelming earnings, Amazon’s third-quarter operating income guidance came in far below estimates. But revenue growth bounced back to 20% in the second quarter, after growth the prior period was the slowest in four years. Every major segment in its e-commerce business accelerated, including first-party online sales, which grew the fastest in two years.

While investors remain cautious of the elevated spending, their reaction was largely muted, giving the company another pass on its thin margins. None of the analysts tracked by FactSet felt compelled to lower their rating after the announcement, and all 45 who have recommendations still call the stock a buy.

“We would be buyers of any weakness as long as top line trends remain intact,” Evercore’s Lee Horowitz wrote in a note Friday.

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