Amazon's Earnings and Bezos' Thinking

Amazon.com's revenues grew a mighty 29% in the first quarter, but the stock tumbled. A week ago, I interviewed CEO Jeff Bezos. While he didn't -- and couldn't -- talk about the earnings announcement, he did discuss the way he thinks about quarterly earnings and the performance of Amazon's stock.

Here's an excerpt from that conversation, after I asked him about some of the things Amazon has tried that didn't work out so well, like the A9 search engine. (Notice my erudite contributions to the discussion...)

Bezos: Yeah, well, we are going to be bold with our experiments and some of them aren't going to work. If you know they're going to work they're not experiments. And if you decide that you are only going to do things that you know are going to work, you're going to leave a lot of opportunity on the table. Companies are rarely criticized for the things that they failed to try.

Maney: That's true.

Bezos: And they are, many times, criticized for things they tried and failed at. And that's one of the reasons, if you want to be a pioneer, you have to get comfortable being misunderstood. In some ways it's a much more pleasant life, probably, we wouldn't know from personal experience, to not - you know, once you have something good just to hone it and hone it and hone it and not try anything new.

Maney: Taking chances is a harder story to explain on Wall Street.

Bezos: We've always been extremely lucky because we've always had a set of investors who really believed in our approach. And when you're talking about Wall Street, of course, Wall Street is a generalization and Wall Street is made up of many different kinds of investors with different investment horizons, different approaches, different philosophies. One of the great - amongst all of the very great Warren Buffetisms -- that are out there, he says, "You can hold a rock concert and that's okay. You can hold a ballet and that's okay. But don't hold a rock concert and advertise it as a ballet."

I think that one of the things that companies have to do, and if they do this early in their life as a public company it's very helpful to them. And that is that they have to be clear about who they are, what kind of - is it a rock concert or is it a ballet? And then investors can opt in.

So we've always been crystal clear about the fact that we are going take a long-term point of view. We are not going to twist our business around, you know, to do unnatural things for the current period. And the reason we believe that is we think that if you want to be - if you want to put customers first, that customer first approach requires that investors be long-term oriented.

Maney: Okay.

Bezos: I believe it as strong as I believe anything that in the long-term, shareholders and customers are perfectly aligned. In the short-term you can always say, "Oh, we could make more money, you know, this quarter and over the next year by raising prices." So in the short-term, if you're a short-term investor with, you know, a six-month investment horizon, you're always agitating for higher margins.

Maney: Right.

Bezos: "Why don't you raise your margins a little? Nobody will notice." But if you're taking a long-term point of view, you say, "No, let's figure out how to be more efficient so that we can return even more value to customer in the form of even lower prices and do things like Super Saver shipping and Amazon Prime," and so on and so on.

I could make the same kinds of arguments for things like selection and rapid delivery and so on but these kind of fundamental things that really matter to customers, if you want to take a customer-centric, customer-first approach, then you have to have shareholders who are long-term oriented. And if you want long-term oriented shareholders, you have to behave in a way that attracts long-term shareholders. You also get the investors you deserve. That's another Buffetism.

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