But Wait, There Are A Few Differences Between Amazon and the US Postal Service

Wolf Richter's picture

Wolf Richter   www.wolfstreet.com   www.amazon.com/author/wolfrichter

When Amazon reported second quarter earnings, or rather losses, it surprised no one, though some people were surprised that it lost that much ($126 million). To make us feel better about those losses, and to be able to beat analysts’ expectations later, it preannounced losses between $410 and $810 million for the current quarter. Analysts fell all over each other dodging the question how a company with over $19 billion in revenues could lose that much, and so consistently.

Amazon has been doing this sort of thing for years. Countless analyses have been written about how terrible its financial performance has been, and how the metrics have been deteriorating, including the operating margin that has swooned from 4.9% in Q2 2010 to a nearly invisible 0.8% now (excellent analysis and charts by Zero Hedge). The company made a tiny bit of profit in 2012, lost money in 2013, and is starting this year out in the hole as well.

“We continue working hard on making the Amazon customer experience better and better,” explained CEO Jeff Bezos in the press release. “We’ve recently introduced Sunday delivery coverage to 25 percent of the U.S. population, launched European cross-border Two-Day Delivery for Prime….” Etc. etc.

He sounded like Patrick Donahoe, CEO of the US Postal Service. Amazon has a lot in common with USPS: they’re in the same ballpark in terms of revenues, both dominate their markets, and neither can figure out how to make money.

But there are a few differences between Amazon and USPS:

Bezos can run his show as he sees fit. OK, there is a board, but it doesn’t seem to give him a hard time about the company’s performance. As long as the stock keeps going up, who cares?

The Postal Service, which had revenues of $16.7 billion in Q2, can’t even sneeze without Congress giving it prior approval. Shutting down unneeded post offices or dropping Saturday delivery? Addressing its huge pension obligations or switching to a pension plan of the kind Amazon has (LOL)? Forget it. Not if any of it would happen in any congressional district and impact negatively any voters. A lawmaker’s sole job is to hang on to his or her job, and everything else serves to get that accomplished.

In return for its valiant service as Congressional and public punching bag, USPS is allowed to perform financially about the same as Amazon: losses as far as they eye can see.

So traders weren’t amused with Amazon’s losses, and there were some hick-ups in revenues too, and the stock plunged over 10% in after-hours trading and stayed near that loss on Friday. It’s now down 20% from its $400 peak at the end of last year.

Bezos doesn’t care. At least Donahoe gets grilled ceremoniously by Congress from time to time about the losses USPS generates. And when he comes up with ways to save money, lawmakers in whose districts he wants to save money in whack him over the head.

Bezos is not subject to this sort of enlightened treatment.

After each loss, shares either jump or dive, depending on whether the loss was worse or less bad than expected, and then, the stock rises again to continue its incredible rally, independent of the company’s performance. At least that’s how it worked until the end of 2012.

During the dotcom bubble, Amazon became famous as a precursor. In December 1999, the stock peaked. A month later, it was down 40%. It had started crashing three months ahead of the market. Ironically, only hindsight will tell if it is once again a precursor.

But in late 2008, Amazon commenced its current mega-rally. It was the time when the Fed began throwing money and ZIRP at Wall Street and speculators, and from then on, nothing else mattered. In five years, the stock rose 10-fold. And the company is still not making any visible profits. The stock is simply surfing on the Fed’s endless sea of liquidity and Wall Street’s hoopla.

That’s why Bezos doesn’t have to produce profits. As long as the stock keeps going up, why bother? Having to produce adequate profits would crimp his style. He has thrown off these constraints normally imposed by owners and creditors on management.

Here is where that’s a problem.

Amazon competes with companies that must make money because their investors demand it, and if these companies don’t make money, investors and creditors walk away, and the money dries up, and they’re finished. Amazon, free from profit constraints, competes with bookstores that, like Borders, go bankrupt if they can’t make money, and with smaller stores that just shut down one day because they must make money to stay in business.

Their big competitor has unlimited resources by being able to raise billions at practically no cost. It can always sell more of its inflated shares, a safety blanket if it runs out of money. It pays executives and other employees via its equity compensation plans, which is like raising money by selling shares to the public and using the proceeds to pay these folks in cash. When Amazon needs additional money beyond that, it sells bonds that cost it, depending on maturity, less than the rate of inflation and are thus free money.

Throughout, neither creditors nor stockholders demand to see any profits.

If the owner of a small bookstore walked into the bank with red on its income statement and begged for a loan, the loan officer would ask, after the pleasantries, “You mean you want to get a loan to fund your operating losses?”

For a small business owner, that’s not a good place to be. And this questions, which was entirely rhetorical, would be followed by another one: “How are you going to pay this back if you can’t make any money already?”

You get the drift. This loan, if it materializes at all, is going to be very expensive and will likely entail the bane of small business, a personal guarantee.

Amazon is Exhibit A of how the Fed’s policy of flooding Wall Street and corporate mastodons with nearly free money is destructive to the rest of the economy.

It creates unfair competition.

Because Amazon can competes on its ability to not ever have to make a profit, it can cut prices to the bone, offer free shipping, etc., which initially is great for consumers until its monopoly power allows it to trample on consumers and suppliers alike – and suppliers, namely publishers, are already experiencing the wrath of Amazon.

This type of competition stifles the local economy, leads to job losses among companies that are not so privileged, and cements the monopoly or oligopoly power of the corporate mastodons [read.... The Jobs Curse At Amazon, And How Obama Stepped Into It].

Of course, that’s how the Fed operates. These corporate mastodons (particularly the big banks) are the legal owners of the 12 Federal Reserve Banks that make up the main part of the Federal Reserve System, and their executives and former executives play important roles in that system. For example, GE owns a stake in the New York Fed, and GE CEO Jeff Inmelt was a Class B director of the New York Fed during the period when it handled the bailouts, including the bailout of GE. Amazon too got bailed out, but indirectly, by investors flush with this freshly printed cash which had to go somewhere.

This is one of the pernicious effects of the Fed’s policies.

They drove stocks to insane heights and the cost of money (for those with access to it) to insane lows in order to create that “wealth effect” and enrich the very top layer of society beyond any measures previously imaginable. But for the rest of the economy, the wealth effect has been an utter failure, a sham, and a pretext.

In the process, these policies destroy the functionality of the Main Street economy where investors and creditors keep companies in line by pushing them to produce real income – not ex-bad-items adjusted pro-forma operating income or some such contrived figure, but real income under GAAP. This form of discipline that every executive of a small or medium-size business is subject to, is completely absent for Amazon (and many other publicly traded companies, including the likes of Twitter). And the only cure is a decision by investors and creditors to walk away from them until they deliver real and adequate profits.

Bubbles are easy to discern – including the performance of Amazon’s stock – despite the Fed’s rhetoric that bubbles cannot be discerned. What’s hard is pinpointing the moment they top out. But that’s precisely what everyone wants to know to cash out before it implodes. Lacking reliable scientific indicators of when to get out, everyone has their own list of ersatz indicators. And I just added a new one to my list, concerning the startup and IPO bubble. You can’t make this up! Read…. Sign of Top? Banana Republic Trots out ‘Startup Guy’ Look

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Downtoolong's picture

‘Startup Guy’ Look

I’ve always thought Mark Zuckerberg’s eerie resemblance to a young Bill Gates was anything but coincidence. I’m surprised Gates hasn’t sued Zuck for infringement on his patented haircut.

I can just hear them in the IPO marketing department at Morgan Stanley back in 2012:

“Come on Mark, try the horn rimmed glasses too. Do you want Facebook to be the next Microsoft or not?”

AdvancingTime's picture

The USPS and Amazon are two of my least fovorite institutions. It should be noted the Postal Service has again backpedaled on its plan to end Saturday mail delivery when it recently conceded that its gamble to compel congressional approval had failed. Now the money losing USPS is assisting Amazon in putting our local stores out of business with Sunday deliveries in some cities.

With limited options for saving money, the USPS governing board said the agency should reopen negotiations with unions to lower labor costs and consider raising mail prices. The financially beleaguered board said it's not possible for the Postal Service to meet its goals for reduced spending without altering the delivery schedule. Keeping these workers on the payroll is just another way Washington masks unemployment at any cost. More on the failures of the USPS in the article below.


rsnoble's picture

Sorry ass situation.  This world is fucking nuts and i'm fast approaching the 'don't trust anyone' mentality.

I pray for the collapse sooner than later.  

Seize Mars's picture

Stop praying for that. You might get what you want. "Collapse" in your mind is the evaporation of the State and a return to some kind of liberty. But that's not how this is going to work. Collapse means a hyperinflative "crack up boom" as von Mises would say, and you think the State is bad now, brother just wait 'til they get into high gear. Soldiers on every corner checking your papers and going through your bags, taking anything that looks shiny or tasty.

These assholes are engineering the "collapse," it's what they want. Total domination.

The State = mass murder. You don't believe me? Find out for yourself:



Renfield's picture

Mars, I agree with you, But in RS Nobles' defense (I pray for the same thing), it isn't so much the collapse I want, as to at least have a glimpse of the promised land on the other side, which is not even visible this side of the collapse. So it's a hopeful prayer... but you are correct sir.

AdvancingTime's picture

Buying something from Amazon is another nail in our coffin. Just say NO!

Comte d'herblay's picture

Point o' odor!!!    

"The previously inviolable pair-o-Dimes no longer apply because, well, it's genuinely different this time. Those who cling---- with bleeding fingers, and ragged finger nails to obsolete, antediluvian, prehistoric, Pleistocene pair-o-dimes, hoping their massive short positions on Amazon, are going to lose and lose berry berry big time".

These words of financial widsom taken from a recent speech to the former clients of Bernie Madoff, and http://www.nydailynews.com/news/national/dead-banker-arrested-20m-fraud-...      

from my sworn enemy, Budgie Twitters, need to be harkened to and acted upon---- as they have been to their enormous profits (and if they adopted it at the beginning of 2008, they can now retire to a Oceafront mansions whisked there on their new G7  


alighting on the shores of several Oceans worldwide, and have their pick of LBFMS).


AdvancingTime's picture

I scream foul! Why has the USPS made a special deal with Amazon to do Sunday deliveries in two cities? This is wrong on several counts. The first and biggest reason is that the USPS is an extension of the US Government and a money losing one at that. Another problem is this hurts all the smaller mom and pop businesses and brick and mortar stores in a community.

This makes government an alliance to a company built on exploiting those who provide jobs to us on the most basic level. Before government decides to embark on such a mission a debate should occur as to the values we hold dear. The article below delves into why we should be pissed.


NoPension's picture

So what does an average person do? Not buy from Amazon, because it ends up fucking the little guy who HAS to make a profit, or go for the lower price because of limited funds?
Business 101 says price discovery is what the market does. But this is convoluted. Maybe this is the new normal. The new paradigm in the digital age. Or maybe, we will all pay the price for for bastardizing market principals. Who knows?
I am a small business man. I must produce value, ( if not a profit) or I'm finished. The profit in my case, ends up being what makes it's way to my accounts. And it ain't much to play with. And I certainly don't get to sell stocks or bonds when things get tight.
This was a very good article, IMO. But the masses are not going to cut off their nose to spite their face. We will, on average, go for the lowest price, best value. We don't have a choice sometimes. These behemoths overwhelm the system, and wipe out competition. I loved to go into a bookstore, and wander the isles. That's gone.
And hoping the " giant hand" of the market will pop up one day and bitch slap these monopolies sounds nice, but we're in the boat with them.

And one last thing. The image in my mind as I read that article was the never ending Costco store in the movie Idiocracy. I am truly astounded how as time goes on, that movie starts to look like a Documentary.

AdvancingTime's picture

Amazon is a monster created from several changes in the way we live and the assistance of a government that over burdens small business. The argument might be made the negatives of good prices can be outweighed by the damage done to small business, community, and society through the trickle down effects of such a mega platform. Lowest price is not always the best price when in contains hidden cost.

aleph0's picture

@Wolf Richter .. excellent article , about time someone else recognized the game.


Maybe you missed the real point ?
The point is that the big guys at the top are geting free money from the CB Cartel to MISPRICE the market ... down to the smallest items / retailers.

If an average retailer makes 5-10% ROI p.a. . .. I think everyone can live with that = slightly higher prices.

The MISPRICING / Free Money means that the big guys can sell say 30%,40%,50% under the "real" price and thus kill off everyone else until they themselves own the market 100%.

Renfield's picture

'Misprice' is a term that should be seen more often on these pages.

As are 'distribution', 'productivity', 'value' (as opposed to 'price'), 'longer term', and so forth.

I bet if you made a word cloud of various financial blogs these days, you'd get 'government' (& various agency acronyms), 'central planning', 'bank', 'interest rate', 'chart', etc.

To me, it illustrates the capture of our productive sector, when discussions are more about government plans/intentions, chart manipulation, and various high-level heists, and not really about what businesses are doing as their productivity leads the economy.

But I can't complain about the blog for that reason. We're in a currency collapse and there isn't a lot of productivity to discuss (at least not safely) any more.

plane jain's picture

It is the same thing Wal-mart did with groceries.  When they first entered the grocery business prices were overall lower at their stores presumably eating losses and lowered margins.

Now?  Not much different...lower on some things, higher on some things than smaller competitors.  

But they have dominated the grocery business due to perceived lower prices, reduced competition, and ubiquity.  And they openly admit that it helps them to have a large number of EBT shoppers likely due to them being the one grocery still open at midnight on EBT reload day.

NoPension's picture

I didn't miss the point. I ask the question no one can answer. Is this the new normal?

Will the bullshit last longer than our ability to stay solvent? ....to paraphrase Greeny...

AdvancingTime's picture

A key weakness with Amazon is that new competition can now cheaply and easily replicate the most profitable parts of Amazon and cherry pick much of their future potential. The bigger they are, the harder they fall. As new players enter the field both growth and margins will be pressed lower.

Renfield's picture

<<Is this the new normal?>>

IMHO no, there's nothing new about it. This is the NORMAL normal for when a currency fails, as the USD is failing. If you read through other currency collapses, you soon see why often a) 'employment' per se is not a problem, as many are 'employed'; b) quality (and eventually quantity) of goods you can buy with the failing fiat falls drastically, leading to shortages; and c) the government will support any 'business' that distributes its fiat to the biggest population. When a currency fails, profit is no longer the motivation, so much as survival and control are. Dramatic but true.

<<Will the bullshit last longer than our ability to stay solvent?>>

IMHO yes, if you insist on sticking with a failing currency system, then yes, it will consume 100% of your productivity. A failing currency eventually consumes everyone who uses it, except those with first access who get rid of it as quickly as possible. So your ability to stay solvent will depend on how long you choose to or must support this predatory system, since in this system you (the productive class) are the prey. Again sorry to be so dramatic but this is just my honest opinion. A failing currency will victimise 100% of its users (even those with first access will eventually be unable to use it at all). If you continue to use a failing currency, and don't move to another one, then you would likely be wiped out I think.

I may be justly accused of oversimplifying here, but the HEART of the problem is the currency.

PS: @Aleph <<the big guys can sell say 30%,40%,50% under the "real" price and thus kill off everyone else until they themselves own the market 100%>> Wasn't this what the 'Wal-Mart miracle' naysayers were warning about back in the '90s?

aleph0's picture

'Wal-Mart miracle' naysayers  were right

Yep .... that is what you get when your "money is funny"  ... as in FIAT.

People these days have no respect for money , and rightly so ... because it is just a Fiat Fraud imposed on the dumbed down 99%.

Today , $Billions mean Zilch .... while $Trillions are the "new Normal".

I remember  the 50s where the UK still had silver and gold coins ... and a house cost 5,000 GBP.
Today you're talking 500K for that same house.

ThroxxOfVron's picture

"Wasn't this what the 'Wal-Mart miracle' naysayers were warning about back in the '90s?"

Those poor fucks were right on the money. 

...& they were probably all hastily buried in the same barren unmarked field as were the premonitions of Ross Perot...

SF beatnik's picture

 Amazon too got bailed out, but indirectly, by investors flush with this freshly printed cash which had to go somewhere.


Well, that money could go in many directions - and it did.

I use Amazon for self publishing, and I  buy a LOT of stuff there. Hell, I bought my mattress at Amazon's site.

For such a big web site, I say it is a masterpiece of design. I love it. And although I don't buy equities (because of the huge house take, that invisible hand), I can see how a business that makes millions of customers happy attracts some of that investor money.


You'd prefer that they buy J C Penney and Sears, I guess.

IANAE's picture

The elimination of brick and mortar (i.e. local) infrastructure comes with very practical risks...

the 2003 Northeast Power Grid outage provided some interesting, but apparently short-lived, perspective.

Wild Theories's picture

This is about as unhealthy for an economy as possible.

Eventually the consumers will be the ones feeling the fallout, many years down the track.

Either the economy will revert back to normal and Amazon will need to make a profit, and it will either squeeze profits out of suppliers or add costs to consumers.

Or the cheap money will keep flowing and big corps keeps getting bigger eating up what competition remains until its the only game left in town - and then it will dictate whatever it pleases to suppliers and customers.

The end game is the same, the only difference is what market share position will Amazon be in when it starts dictating terms.


Amazon's strategy of aggresively undercutting competition and gaining market share by running at a operating loss has been obvious from day one - it wants to become a monopoly.

It doesn't just want market share, it wants market domination, and it wants to become Walmart 2.0. And as long as the market continue to fund their expansion without demanding a profit- basicly allowing them to engage in unfair competition, they will get there.

Walmart took 40-50 years, starting in the 60s, to reach a market dominating position. I bet Bezos is secretly hoping to do the same in less than half the time, because Walmart didn't have the cheap money on-tap in its early years that Amazon has today.

Magnum's picture

This is an excellent short article.  Thanks ZH for publishing.

I have a unique insight into Amazon. As a result I never buy anything from them--just don't want to support what they do.  

You can usually get a better deal & support a real company, buying elsewhere.  The fees Amazon charges merchants is high.  

Also, on the issue of counterfeit merchandise.  In my opinion, much flowing through Amazon is fake knockoff that third party vendors ship to the Amazon distribution centers.  Amazon collects fees so may not have a sincere interest in policing the counterfeits.  I wonder why manufacturers have not sued Amazon.  

AdvancingTime's picture

 It is hard to see why Amazon has any fans when you consider how they abuse and exploit the brick and mortar stores that line streets throughout America. These are the stores that employ our family members, support little league teams in the community, and add value to our lives.

These stores build or lease space, buy supplies from the other local businesses, and pay both sales and real-estate taxes. While Amazon sends out the signal that their customers are smart, forward thinking, and upscale they exploit America and have an evil side, this is a side we should and must recognize. More on this subject below.



disabledvet's picture

This article sucks ass (see below.).

Amazon has absolutely stupendous revenue growth, something not even mentioned here. It's also global and An innovator. The Postal service is an overpaid sinecure while in theory offering the benefits of privacy in practice just another NSA cover to spy on Maericans and then destroy their freedoms economic or otherwise. They despise vets and despise due process even more. GOOD RIDDANCE!

If State governments wish to carry on the ideal "I respect the post mission) by all means...but this is no longer a federal mission.

NoPension's picture

I live in a state with a 6% sales tax. I am 15 minutes from a state that has no sales tax.
I needed appliances for a project. My client made the final decision. If purchased " in state" the sales tax is over $500.00. That is probably close to the profit margin on the package. Care to guess what the decision was? And, oh, by the way, my clients operate a mom and pop business. They didn't fucking hesitate making the choice.

So there is your answer.

NoPension's picture

And another tidbit..

As you drive to the state with no sales tax, you drive through nothing. Miles of empty space or farmland . Depending on the route, you go through towns that are decayed,dead and dying.
As soon as you cross the state line, 1/2 mile in, boom town. Lowes,Home Depot, an Amazon distro center( those fucking things are huge , I think they get their own zip code!), every chain restaurant known, at least 3 grocery stores, apartments, houses, Strayer college, office buildings, fully leased flex space and more. All less than 10 years old!

Ariadne's picture

I am a fan of Jim Casey, the man who created United Parcel Service. A superlative, profitable private business for nearly 100 years until it was taken public by the Clintonistas. Now its just another package/hope smashing carcass for CFR carrion.

Mercuryquicksilver's picture

Eventually Bezos will ship my "Media Mail" free via my Amazon Prime membership while undercutting USPS


Then shit gets real!!!!


Until then the only pertinent question is:  Amazon Prime Instant or Netflix?

lasvegaspersona's picture

Las Vegas is beginning a Sunday delivery service (USPS)..why...Amazon!! yep the Post Office is running a pilot program here and elsewhere to service a company that can't make money either...neither has to though...they have the Fed.!!!

Baby Eating Dingo22's picture

I'm confused

Is this about the Bozo running Amazon on free money or the O'Bozo from the Nile running the USA on free money?

Because other than a few letters and a river, I don't see the difference

AdvancingTime's picture

Amazon specializes in hype and not profits!  Words like "evolving" are used to describe Amazon's business model, a better word might be undefined. Regardless Amazon rolls on. Pointing towards gaining synergy as they continue to buy companies, some unproven. The revenues from these companies add to their growth but still no profits exist. Beware Amazon is far from transparent.

I contend this growth mask a weakness at their core? If they are indeed a distribution company their stock should be trading at around 18 times earnings. When you look for a P/E ratio on Amazon you find NA because the company makes no money. Another key weakness is that new competition can now cheaply and easily replicate the most profitable parts of Amazon and cherry pick much of their future potential. The bigger they are, the harder they fall, it is only a question of time. More on this subject below.



IANAE's picture

Interesting... charismatic showmanship, market/consumer buzz, innovation and operational excellence (e.g. websites, warehousing/delivery) aside, one could argue AMZN has effectively consolidated the bookselling industry (and others?) by ruining competitors and thus concentrated the credit risk for the affected firms/industries into one, massive, virtual firm with no retail locations and plenty of nol.

Cash flow from expansion and cheap liquidity used to mask losses is an old game (known by various other names...) and typically ends badly when growth stagnates, borrowing costs rise, and/or funding (at any cost) vanishes.

Reality of pnl eventually controls...even if not initially.

Once the creditors (and shareholders...) realize the game is up costs will rise and competitors will re-enter the market.