Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX) posted quarterly results last week, and both companies have done substantially well over the past few years. However, investors might not be realizing the future potential of both companies, says a report from The Globe and Mail by Chris Umiastowski.
Amazon reinvesting profit
Amazon is shelling out funds to establish distribution center for physical products. Contrary to the usual belief of Amazon being a vendor, the company has built one of the most systematic fulfillment operations on the planet. This is a strong point for Amazon, says the author.
Amazon.com, Inc. (NASDAQ:AMZN) would be the best place to start a business of selling products online. The online vendor has gained the same stature in online selling as credit card companies hold in electronic transaction. Just like credit card companies charge for every transaction, Amazon also takes a fee for every physical product it moves through its warehouses on behalf of the third party seller.
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The online retailer generated approximately $5 billion in cash flow from operations in the previous 12 months, and a major portion of this would be reinvested into the growth. Sales surged 24% in the third quarter compared to the previous quarter period, which justifies the reinvesting strategy adopted by CEO Jeff Bezos.
Additionally, Amazon.com, Inc. (NASDAQ:AMZN) is expanding beyond sales of physical goods, and is building data centers to assist its cloud computing business that offers a variety of computing resources that can be used by any online user on a pay-as-you-go basis.
Impressive U.S. growth for Netflix
Another company, Netflix, Inc. (NASDAQ:NFLX) also follows the strategy of reinvesting its profit into growth. The content streaming company expends considerably on producing its own content, buying new licenses for popular content and gaining traction into new economies.
In the United States market, growth is tremendous as the user base expanded 26% in the last year totaling to 30 million households. Globally, Netflix, Inc. (NASDAQ:NFLX) has over 40 million subscribers, which is 190% ahead of last year. The fact is more noteworthy considering that, as of now, Netflix has spread its wings only in major markets such as France and Netherlands, and has the potential to expand further into Europe and Asia.
The author feels that investors may find both companies to be overvalued, but they the companies have all the metrics needed to grow; great management and execution. Both of them are following the clever strategy of reinvesting their profits into growth, and have the potential to outpace the market over the next 10 years.