Tags: Amazon | Bezos | cash | margins

Amazon’s Bezos: Free Cash Flow Trumps Margins for Investors

Monday, 07 Jan 2013 05:27 PM

 

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Amazon.com Inc. Chief Executive Officer Jeff Bezos is more interested in rewarding investors through free cash flow than by boosting margins.

“Percentage margins are not one of the things we are seeking to optimize,” Bezos said in an interview with the Harvard Business Review posted online Jan 3. “It’s the absolute dollar free cash flow per share that you want to maximize. If you can do that by lowering margins, we would do that. Free cash flow, that’s something investors can spend.”

Amazon is spending to improve a network of warehouses and enhance cloud-computing facilities that give customers a cheap and safe way to outsource data centers. Operating margin is estimated to be 1.8 percent this year, down from 4.6 percent in 2009, after a building boom to lure cloud customers and boost online product sales. Bezos said those investments ultimately will add to free cash flow that totaled $2.09 billion in 2011.

This year, free cash flow per share for Seattle-based Amazon is expected to rise 65 percent to $10.68, from an estimated $6.48 in 2012, according to data compiled by Bloomberg. Meeting customers’ demands, even if that means lowering prices to build loyalty, will boost cash flow over the long term, Bezos said.

“We’ve done price elasticity studies, and the answer is always we should raise prices,” he said. “We don’t do that because we believe -- and again we have to take this as an article of faith -- we believe that by keeping our prices very, very low, we earn trust with customers over time and that that actually does maximize free cash flow over the long term.”

© Copyright 2014 Bloomberg News. All rights reserved.

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