Michael Moritz

In defense of Amazon

August 6, 2013: 11:43 AM ET

The man who wrote the first good book about Apple sings the praises of Jeff Bezos.

Bezos. Photo: TOM STOCKILL / CAMERA PRESS / RETNA

Bezos. Photo: Tom Stockill / Camera Press / Retna

Moritz

Moritz

FORTUNE -- The news Monday that the Washington Post has been purchased by Jeff Bezos, the founder and CEO of Amazon (AMZN), has launched hundreds of stories and tweets -- including Andy Borowitz's Amazon Founder Says He Clicked on Washington Post by Mistake.

Nothing gets the chattering classes chattering like the sale of a storied newspaper -- especially when it follows so closely the sale of two other name brand journalistic outlets, Newsweek and the Boston Globe.

But of those hundreds of stories, the piece that is most relevant to Apple investors is the one by Michael Moritz, the former Time correspondent who wrote The Littlest Kingdom, the first inside story of Steve Jobs' Apple, and went on to become one of Silicon Valley's most successful venture capitalists (Google, Yahoo!, PayPal, YouTube, etc.).

As readers of this column know, Amazon is one of the companies most often compared by investors with Apple and found wanting.

Moritz uses Bezos' WashPo purchase as an opportunity to set those Apple investors straight.

In a 1,700-word LinkedIn post titled Stop the Presses: A New Press Lord Appears, Moritz points readers to Bezos' original 1997 letter to shareholders -- a document Amazon has appended to every shareholder letter since -- and offers a lesson in how to read the company's balance sheet. A sample:

One fact, not disclosed in any of these letters, is the extraordinary cash generating power of Amazon's business and its zealous protection of shareholders. In 1997, Bezos wrote that one chief measure of "our success will be the shareholder value we create over the long term." While critics fasten on the company's skimpy operating margins, or the fact that the company has generated just $1.9B of net income since inception they should turn their attention instead to the cash flow statements and the shareholder base of the company. It isn't too much of an exaggeration to say that Amazon's entire business has been financed by vendors and customers: book-sellers who collect their invoices slowly; consumers who stump up money for Amazon Prime in advance of receiving deliveries; or companies that pay in advance for guaranteed capacity on AWS. In Los Angeles customers who pay $220 up front for Amazon Fresh, the company's home delivery grocery service, get 'free' shipping on orders above $35. It might be 'free' but Amazon has their cash. Customers and vendors have helped Amazon build its 90 fulfillment centers, which now enclose about 65 million square feet. That should be enough to make the managements of FedEx and UPS tremble.

Since inception Amazon has generated $20.2 billion from operations almost half of which ($8.6 B), has been used for capital expenditures such as new distribution centers, which improve life for the customer. In the past ten years the share base has only increased by just over 10% while the company has grown twelve-fold. For shareholders it doesn't get better than that.

The term 'shareholder value' has been much maligned in recent years. Asset strippers, masquerading behind the title 'private equity', use the phrase to describe the way they enrich themselves at the expense of others and managements employ it to camouflage bad news. Little wonder that young entrepreneurs often think of 'shareholder value' as a term of opprobrium. In the right hands, especially a Founder who owns a large part of his company (Bezos owns nearly 20% of Amazon) it is a reflection of doing many things right – and this starts with pleasing customers. Companies do not increase shareholder value over the very long-term unless they have happy customers.

For those who believe that "Amazon is a charitable organization being run by elements of the investment community for the benefit of consumers" -- an oft-repeated remark that both Bezos and Moritz find hilariously half-witted -- it's a must read.

Link: Stop the Presses: A New Press Lord Appears.

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