In this segment of the Motley Fool Money radio show, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Supernova and Rule Breakers' David Kretzmann talk about Jeff Bezos' habit of investing heavily for the future at the expense of immediate earnings. Last quarter, it wrote a lot of checks for new content, improving its fulfillment infrastructure, and more. It's all about boosting the value for Prime customers -- and widening its vast moat. The short-term-focused market, of course, dinged the share price, but it's still near its all-time high.
A full transcript follows the video.
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This video was recorded on July 28, 2017.
Chris Hill: Amazon's (NASDAQ: AMZN) second quarter report featured a lot more investing than Wall Street was probably hoping for. Profits came in much lower than expected. Jason, the stock dipped after the report on Friday. Previously in the week, it had hit a new all-time high, though.
Jason Moser: Sure. It's been a wonderful run for a wonderful business. Every once in a while, Amazon reminds us that they have that ability to spend, spend, spend. And that's what they're doing in fulfillment and content. Really, it's all about building out that Prime value offering. It's growing Prime members and giving us as consumers more value with that relationship. So, every few quarters, you see the market take a step back and rethink this for a second, and then quickly come back to their senses and say, listen, if anybody's going to get in there and compete with Amazon on any meaningful level, it's not just capital you need. There's a lot of time that's gone by. I don't know that there's any way that any sort of other retail presence out there can catch up. And I think proof of that is that we're seeing more and more retail partners deciding to partner up with Amazon versus trying to compete with them. Nike, for example. It's like the old saying goes, if you can't beat them, join them. I think a lot of retail presences out there are coming to that realization today. Amazon Web Services is still an incredible business. Margins came down a little bit on that side of the business as they build that out. Certainly, competition on that front is growing with Microsoft and Google. But all in all, it's another successful quarter, 25% top line growth. This is a beast of a company. We own it in Million Dollar Portfolio and we're going to keep on holding it for many years to come.
Hill: To go back to Facebook (NASDAQ: FB) for a second, this didn't get a lot of headlines in terms of their latest quarter, but one of the things when you dig into that conference call for Facebook is, they're starting to tighten up their expenses a little bit, tightening the range of how much they're going to spend. On the flip side, you look at Amazon, this quarter, they spent more on capex than Microsoft and Google combined.
Matt Argersinger: It's incredible, but it's that 25% top line growth. How many companies that are 22 years old can grow at that rate? It's phenomenal. I think there's a real line, a straight line, to $30 billion in free cash flow for this business in five years. And the quickest way to get there is to keep growing the top line. And I hope investors get that. I know we get that at The Fool.
Moser: It's also, the nature of these two businesses, they are very polar opposites in the sense that Amazon is spending all of this money trying to make our experience as customers better and better everyday. Facebook is stuck in this vortex of trying to figure out how to make your experience less miserable while still making some money. And I'm not saying all, I say all in quotes, but it's an ad company. It's not like people go to Facebook saying, "I wonder what great ads are playing today!" It's a delicate balance for them. Amazon doesn't have to worry about that balance. And the beauty of all that money they invest is, it continues to make consumers lives better, and on the flip side of that coin, it makes those third-party customers of Amazon's retail network, the people that are selling us, it makes their lives better. So, they win on both sides of the coin there. There's a tremendous advantage to their model.
David Kretzmann: I think it's actually telling that the stock is only down 2-3% on this news. A couple years ago, if Amazon had reported a quarter like this where they were heavily reinvesting in the business, Wall Street wasn't so forgiving with that. But Jeff Bezos, unfortunately, I hope he enjoyed his few hours in the sun as the richest man on the planet. Maybe he'll still make it there later.
Argersinger: He'll get there real soon.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Chris Hill owns shares of Amazon. David Kretzmann owns shares of Alphabet (C shares), Amazon, Facebook, and Nike. Jason Moser owns shares of Nike. Matthew Argersinger owns shares of Alphabet (C shares) and Amazon. Matthew Argersinger has the following options: short December 2017 $800 puts on Amazon, long January 2019 $45 calls on Nike, and short October 2017 $60 calls on Nike. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Nike. The Motley Fool has a disclosure policy.