"FCF is evil"

Amazon explicitly states that we should focus on trailing 12m free cash flow, not net income, as the key performance metric. (The thing about FCF, of course, is that it's hugely positive in the Christmas quarter as all the cash comes in, and then hugely negative in the March quarter as Amazon pays all the suppliers: using trailing 12m smooths this out.)

This, therefore, is a chart of Amazon's preferred profitability metric.  

Screen Shot 2013-01-27 at 11.53.53 PM.png

It seems pretty clear that Amazon is optimising its cashflow to zero: pushing it as low as it is possible to go and still run the business. This is rather like Tim Cook at Apple managing inventory to zero: Amazon manages cashflow and profits to zero. 

The really striking thing is if you compare this to revenue, in this indexed chart.

Screen Shot 2013-01-27 at 11.40.06 PM.png

Over the last 3 years, Amazon revenue is up 130% and it's chosen profitability metric is down by two thirds. This is not a coincidence. 

Jeff Bezos says that "your margin is my opportunity": this is what that means.