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The ruling rationale goes something like this: We always had to get big fast. Now we have to get even bigger even faster. The Internet landgrab isn't over just yet. Our infrastructure is scalable, so costs will drop as sales grow. The average customer is ordering more. Sales grew 84% in the second quarter. We pay $13 in marketing to acquire a customer--less than a fifth of what it costs credit-card companies. Most of our businesses are less than a year old. Expect profitability in a few years, unless some other great investment opportunity comes along. Don't get it? Don't worry. "This is not a company to try to understand on the surface," says Bezos. "It requires focus, concentration."
At the other end of the spectrum stands Bezos' bete noir, Ravi Suria, a debt analyst at Lehman Bros. in New York City. Suria shot to fame in June with a report that blew the stock to pieces. For the first time, a Wall Street institution proclaimed that Amazon would eventually run out of cash "unless it manages to pull another financing rabbit out of its rather magical hat." The day of reckoning will come in the first quarter of next year, when sales are slower and Amazon goes cap in hand for more cash, as it has in the past. In this more frugal climate, Suria suggests, big Amazon backers like Kleiner Perkins may decline. (The venture-capital firm did not return calls for comment.)
Nonsense, says Bezos, who chides Suria for treating the company like a bricks-and-mortar retailer rather than a virtual store with a handful of distribution centers and minimal inventory costs. After Amazon's second-quarter results were released, Bezos claims, Suria tacitly admitted his mistake. "He sent us an e-mail starting out, 'Wow...you guys are really tightening your belts,'" says Bezos. "I printed it and had it framed."
Suria's e-mail, however, was a mite more skeptical than Bezos makes out--definitely no "Wow"--and the analyst is just as bitingly critical of Amazon as before. "Nothing's changed," says Suria. "We still expect cash to be a problem in the first quarter. We still expect the party to be over."
This particular party has $908 million left in the bank. Its cash flow is at negative $400 million for the year--ugly, but Amazon doesn't expect to bleed much more. Its annual debt service is $150 million. No wonder the company is quietly shifting gears in the drive toward profitability. Eagle-eyed analysts have seen a slow, steady price rise on high-profit stuff like electronics. And the enormous premium that Greenlight.com is paying for placement on the site could be a sign of things to come, says Mike May, senior analyst at Jupiter Communications. "Increasingly, retailing is a Trojan horse for high-margin business like advertising," he notes.
There was one little-known and questionable belt-tightening measure last holiday season. Amazon required hundreds of staff members to ship out from headquarters and pitch in at distribution centers around the country. This year it will be voluntary--and with good reason. "Morale was horrible," says a former employee who got three days' notice of the move. "[The distribution staff] thought we were there to take their jobs." Upon her return, she found a memo warning staff members not to disclose that they had been used as temp labor.